Levin warns against cuts in middle-class tax deductions

While Sen. Carl Levin has focused intently on corporations that avoid taxes by hiding profits and other financial assets overseas, his brother, Congressman Sandy Levin, is warning against putting all tax deductions on the table when discussing tax reform.

The top-ranking Democrat on the House Ways and Means Committee, Levin has issued a statement in response to the Congressional Budget Office’s new report on the major tax expenditures in the IRS code:

“The CBO report underscores the need to go beyond the rhetoric of lowering tax rates without indication of how that would be achieved or the implications for economic growth and tax equity. The report confirms distributional analyses that the Joint Committee on Taxation provided to Ways and Means Democrats two years ago that showed how some tax preferences decisively benefit only the very wealthy while others are significant for middle-income taxpayers. The preferences that benefit the very wealthy highlight the ability to obtain the needed revenues to address the (budget) sequester and achieve a balanced approach to tax reform.”

Among the CBO report’s key findings:

Employer-Sponsored Health Insurance

“The exclusion of employers’ contributions for health care, health insurance premiums, and long-term-care insurance premiums for their employees is the single largest tax expenditure in the individual income tax code; it is estimated to reduce tax liabilities by $260 billion (or $140 billion excluding the effects on payroll taxes) in 2013.” CBO estimates that 66 percent of the benefit accrues to the bottom 80 percent of the income distribution.

Home Mortgage Interest

“The deduction for interest paid on mortgages for owner-occupied residences, which CBO estimates will equal $70 billion in 2013, is the [second]-largest itemized deduction. It is also the least tilted toward the top of the income distribution, in part because the law caps the maximum mortgage amount on which interest payments can be deducted (generally limited to the first $1 million of mortgage debt) and in part because mortgage debt rises less rapidly with income than do other deductible expenses.”

Capital Gains and Dividends

“Virtually all of the benefits from the preferential tax rates on those sources of income accrue to the top quintile (top one-fifth) of households. The tax expenditure for that group will equal 1.7 percent of their after-tax income in 2013, CBO estimates. Within the top quintile, the tax expenditure is heavily concentrated in the top 1 percent of households, because a large share of investment income in the form of capital gains realizations and dividends accrues to those taxpayers. The top 1 percent of households will receive more than two-thirds of the total value of the benefit in 2013, CBO estimates, which will equal 5.3 percent of their after-tax income.”