Please purchase a subscription to read our premium content. If you have a subscription, please log in or sign up for an account on our website to continue.
Please log in, or sign up for a new account to continue reading.
Thank you for reading! We hope that you continue to enjoy our free content.
Welcome! We hope that you enjoy our free content.
Thank you for reading! On your next view you will be asked to log in to your subscriber account or create an account and subscribepurchase a subscription to continue reading.
Thank you for reading! On your next view you will be asked to log in to your subscriber account or create an account and subscribepurchase a subscription to continue reading.
Thank you for signing in! We hope that you continue to enjoy our free content.
Considerable cloudiness. Occasional rain showers after midnight. Low 66F. Winds light and variable. Chance of rain 50%..
Considerable cloudiness. Occasional rain showers after midnight. Low 66F. Winds light and variable. Chance of rain 50%.
Updated: September 6, 2022 @ 6:09 pm
There’s been a lot of concern about President Biden’s forgiveness of student loans. What makes those indebted people worthy of government charity? Why should the rest of us pay their bills? Didn’t others pay back their loans? And what about all the people who never made student loans?
What do we mean by “paying off” their loans? Let’s put it in perspective.
First, no money is changing hands; the Federal government is not sending checks to people with outstanding student loans. Instead, the government will not collect the money it’s owed. That’s not uncommon. The government is already “paying” billions of dollars to lots of people for all kinds of reasons we don’t know about: e.g., tax money not collected because the taxpayer is allowed to deduct certain income from taxation, or because the taxpayer can apply a credit to the amount of tax owed. It’s called a tax expenditure.
Tax expenditures are defined as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” The Congressional Budget Act of 1974 requires that the list of tax expenditures be included in the budget; the United States Treasury lists more than 160 tax expenditures, such as a tax credit for crude oil and natural gas produced from a qualified marginal well, or a tax exemption for reimbursed employee parking expenses. You might call them loopholes.
The Congressional Budget Office (CBO) noted that tax expenditures are unevenly distributed across the income scale. Tax expenditures provide the largest subsidies to high-income people even though these individuals are least likely to need financial incentives to buy a home, send a child to college, or save for retirement. According to the Center on Budget and Policy Priorities (CBPP), in fiscal year 2019, the richest one percent of households received approximately 24 percent of the tax expenditure benefits; the top 20 percent received 59 percent. In fiscal year 2018, tax expenditures reduced Federal income tax revenue by roughly $1.3 trillion, and reduced payroll taxes and other revenues by an additional $140 billion.
The largest individual income tax expenditure in 2019 was the provision that allows households to exclude from taxable income the value of employer-provided health insurance. The next three largest were the lower rates at which capital gains are taxed relative to earned income; tax breaks on owner-occupied housing, such as the home mortgage interest deduction (HMID); and the tax break for employer-based retirement plans. The Tax Cuts and Jobs Act (TCJA) of 2017, passed by former president Trump and Congressional Republicans, allows taxpayers who itemize on their tax returns to deduct home mortgage interest paid on up to $750,000 of mortgage principal, on either a primary or second residence; after 2025, taxpayers will be allowed to deduct home mortgage interest on up to $1 million of mortgage principal.
In 2018, about 4 percent of taxpayers earning less than $50,000 claimed the HMID, and these taxpayers received less than one percent of that tax expenditure’s overall benefits. Taxpayers making over $200,000 account for 34 percent of HMID claims and receive 60 percent of the
benefits. On the other hand, in Pennsylvania for example, 74 percent of student debt forgiveness will go to borrowers earning less than $62,400. They are more likely to spend their savings than wealthy people, thereby boosting our consumer-driven economy.
Furthermore, the TCJA was a massive wealth transfer from working people to the already-rich. The TCJA reduced income tax rates for six of the seven tax brackets, especially for higher-income Americans. Low-income individuals saw the least benefit because the lowest income tax rate, 10 percent, did not change. In addition to the standard income tax brackets, the tax cuts lowered the capital gains tax brackets, which allow more individuals with high investment income to qualify for a lower capital gains tax rate.
The projected cost of the TCJA is $1.5 trillion. The Treasury Department estimates that the HMID alone will reduce Federal revenue by nearly $600 billion from 2019-2028. A new estimate from the Wharton School finds Biden’s student debt forgiveness plan could cost $300 billion this year, with an estimated cost a little below $330 billion if borrowers remain eligible for forgiveness over the next ten years. The Committee for a Responsible Federal Budget, a nonprofit that analyzes Federal fiscal policy, estimates Biden’s student debt forgiveness’ plan will cost between$440 billion to $600 billion over the next 10 years.
How much revenue does the Federal government lose due to tax expenditures? The CBO estimated that tax expenditures in fiscal year 2019 cost $1.6 trillion, or 7.8 percent of GDP (Gross Domestic Product). This was more than all discretionary spending, $1.3 trillion, and was equal to nearly half of all Federal revenue, $3.5 trillion.
The focus on student debt draws attention away from the larger and more insidious problem of inequality.
Mark Berg is a community activist in Adams County and a proud liberal. His email address is MA*******@Co*****.net.
Your comment has been submitted.
Reported
There was a problem reporting this.
Log In
Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.
About Author
