Fact Sheet: Who Benefits From Tax Expenditures?

In much of the coverage of tax expenditures, it has been taken as an article of faith that they disproportionately benefit wealthy taxpayers. But, data show tax expenditures tend to skew towards middle class Americans or those below the Obama Administration’s definition of the rich - that is singles with adjusted gross incomes over $200,000 per year and married couples with incomes over $250,000 per year.

According to the Joint Committee on Taxation, taxpayers with income over $200,000 bear 64% of the tax burden while taxpayers earning under $200,000 bear 36%. The following summarizes the percentage of tax expenditures that go to these taxpayers:

Mortgage Interest Itemized Deduction: 30% of the benefit of the mortgage interest tax expenditure goes to taxpayers over $200,000. Taxpayers with income below $200,000 receive 70% of the benefit, while shouldering 36% of the tax burden. By a ratio of almost 2 to 1, taxpayers under $200,000 benefit from it.

Earned Income Credit: It is a refundable credit. That means taxpayers receive it whether they pay income tax or not. Because the earned income credit is refundable, the so-called rich taxpayers do not benefit from it, but 100% of the benefits go to those earning under $200,000.
Child tax Credit: This is by definition, limited to lower and middle income taxpayers. Again, none of it goes to higher income taxpayers.

State and Local Taxes: This one splits down the middle – 50% of this broad-based deduction goes to middle income families and 50% to top earners.

Charitable Itemized Deductions: Of all of the tax expenditures listed, at 55% this one distributes in the highest proportion to taxpayers above $200,000 in income. But keep in mind, overall, taxpayers with income over $200,000 bear 64% of the tax burden. This means, proportionately, the charitable deduction benefits taxpayers under the $200,000 level more than taxpayers above the $200,000 level.

Tax-Free Portion of Social Security Benefits: Just 2% of that favorable tax treatment of Social Security goes to seniors with incomes over $200,000.

Real Property Taxes: While some may say that only those with villas are taking the property tax deduction, 80% of the real property tax benefit goes to taxpayers under $200,000.

Education Credit: Here again, 100% of these benefits go to taxpayers earning under $200,000.
Medical Itemized Deduction: 89% of this tax benefit goes to taxpayers earning less than $200,000.

Dependent child care credit: This is a modest tax credit that working moms and dads can tap. Like the child tax credit, it mainly is used by middle income families. 96% of the benefits of this credit go to families earning less than $200,000.

Student Loan Interest Deduction: This tax benefit is income limited. All of the benefit goes to taxpayers earning less than $200,000.

Source: Joint Committee on Taxation Estimates of Federal Tax Expenditures for Fiscal Years 2010-2014, December 15th, 2010. http://www.jct.gov/publications.html?func=startdown&id=3718

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