Under the new health care law, millions of Americans will get government help to cover medical bills. Many will simply be added to the rolls of Medicaid, the government health plan for the poor. But the rest will get their subsidies a different way — through tax credits that lower the cost of their insurance premiums and co- payments.
The new tax credits, which will eventually cost the government more than $50 billion a year, are part of a growing array of federal benefits offered through the tax code. Known as “tax expenditures” in budget jargon, such tax breaks were worth more than $1 trillion last year.
That’s more than the government spent on Social Security, and nearly enough to balance the federal budget.
And their cost is growing. Even if Congress doesn’t add any tax credits, analysts predict that the rising cost of existing tax breaks could add about $3 trillion to the federal debt by 2020. With policymakers looking for ways to reduce soaring deficits, lawmakers in both parties are taking a fresh look at paring them back, perhaps as part of a tax-reform effort.
“Our tax system is inefficient and riddled with special exceptions,” said Alice Rivlin, a scholar at the Brookings Institution and a member of President Barack Obama’s bipartisan deficit commission, which held its first meeting last month. “If you are looking for additional revenue over time, one approach is to move in the direction of reforming the income tax.”
Congress last cleaned up the tax code in 1986. Since then, special breaks have proliferated with bipartisan support and now permeate almost every corner of American life. Republicans see tax breaks as a way to spur business investment and rein in the growth of government. Democrats use them to channel money toward social programs — low-income housing, assistance for low-income workers, college tuition and green energy. But analysts say many of the biggest tax breaks have a tendency toward cost escalation, similar to the automatic, formula-driven growth of old-age entitlement programs.
But paring back or eliminating a tax break is no easier than eliminating a spending program. Even obscure loopholes have armies of defenders.
