TAX EXPENDITURES United States Federal Budget 2006

E-Government Access

TAX EXPENDITURES

19. TAX EXPENDITURES The Congressional Budget Act of 1974 (Public Law 93–344) requires that a list of ‘‘tax expenditures’’ be included in the budget. Tax expenditures are defined in the law 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 liability.’’ These exceptions may be viewed as alternatives to other policy instruments, such as spending or regulatory programs. Identification and measurement of tax expenditures depends importantly on the baseline tax system against which the actual tax system is compared. The largest reported tax expenditures tend to be associated with the individual income tax. For example, sizeable deferrals, deductions and exclusions are provided for employer contributions for medical insurance, pension contributions and earnings, capital gains, and payments of State and local individual income and property taxes. Reported tax expenditures under the corporate income tax tend to be related to timing differences in the rate of cost recovery for various investments. As is discussed below, the extent to which these provisions are classified as tax expenditures varies according to the conceptual baseline used. Each tax expenditure estimate in this chapter was calculated assuming other parts of the tax code remained unchanged. The estimates would be different if all tax expenditures or major groups of tax expenditures were changed simultaneously because of potential interactions among provisions. For that reason, this chapter does not present a grand total for the estimated tax expenditures. Moreover, past tax changes entailing broad elimination of tax expenditures were generally accompanied by changes in tax rates or other basic provisions, so that the net effects on Federal revenues were considerably (if not totally) offset. Tax expenditures relating to the individual and corporate income taxes are estimated for fiscal years 2004–2010 using three methods of accounting: revenue effects, outlay equivalents, and present values. The present value approach provides estimates of the revenue effects for tax expenditures that generally involve deferrals of tax payments into the future. The section of the chapter on performance measures and economic effects presents information related to assessment of the effect of tax expenditures on the achievement of program performance goals. This section is a complement to the Government-wide performance plan required by the Government Performance and Results Act of 1993. The 2004 and 2005 Budgets included a thorough review of important ambiguities in the tax expenditure concept. In particular, this review focused on defining tax expenditures relative to a comprehensive income tax baseline, defining tax expenditures relative to a broad-based consumption tax baseline, and defining negative tax expenditures, i.e., provisions of current law that over-tax certain items or activities. A similar review is presented in the Appendix again this year. TAX EXPENDITURES IN THE INCOME TAX Tax Expenditure Estimates All tax expenditure estimates presented here are based upon current tax law enacted as of December 31, 2004. Expired or repealed provisions are not listed if their revenue effects result only from taxpayer activity occurring before fiscal year 2004. Due to the time required to estimate the large number of tax expenditures, the estimates are based on Mid-Session economic assumptions; exceptions are the earned income tax credit and child credit provisions, which involve outlay components and hence are updated to reflect the economic assumptions used elsewhere in the budget. The total revenue effects for tax expenditures for fiscal years 2004–2010 are displayed according to the budget’s functional categories in Table 19–1. Descriptions of the specific tax expenditure provisions follow the tables of estimates and the discussion of general features of the tax expenditure concept. As in prior years, two baseline concepts, the normal tax baseline and the reference tax law baseline, are used to identify tax expenditures. These baseline concepts are thoroughly discussed in Special Analysis G of the 1985 Budget, where the former is referred to as the pre-1983 method and the latter the post-1982 method. For the most part, the two concepts coincide. However, items treated as tax expenditures under the normal tax baseline, but not the reference tax law baseline, are indicated by the designation ‘‘normal tax method’’ in the tables. The revenue effects for these items are zero using the reference tax rules. The alternative baseline concepts are discussed in detail following the tables. Table 19–2 reports the respective portions of the total revenue effects that arise under the individual and corporate income taxes separately. The location of the estimates under the individual and corporate headings does not imply that these categories of filers benefit from the special tax provisions in proportion to the respective tax expenditure amounts shown. Rather, these breakdowns show the specific tax accounts through which 316 ANALYTICAL PERSPECTIVES the various provisions are cleared. The ultimate beneficiaries of corporate tax expenditures could be shareholders, employees, customers, or other providers of capital, depending on economic forces. Table 19–3 ranks the major tax expenditures by the size of their 2006–2010 revenue effect. Interpreting Tax Expenditure Estimates The estimates shown for individual tax expenditures in Tables 19–1, 19–2, and 19–3 do not necessarily equal the increase in Federal revenues (or the change in the budget balance) that would result from repealing these special provisions, for the following reasons. Eliminating a tax expenditure may have incentive effects that alter economic behavior. These incentives can affect the resulting magnitudes of the activity or of other tax provisions or Government programs. For example, if capital gains were taxed at ordinary rates, capital gain realizations would be expected to decline, potentially resulting in a decline in tax receipts. Such behavioral effects are not reflected in the estimates. Tax expenditures are interdependent even without incentive effects. Repeal of a tax expenditure provision can increase or decrease the tax revenues associated with other provisions. For example, even if behavior does not change, repeal of an itemized deduction could increase the revenue costs from other deductions because some taxpayers would be moved into higher tax brackets. Alternatively, repeal of an itemized deduction could lower the revenue cost from other deductions if taxpayers are led to claim the standard deduction instead of itemizing. Similarly, if two provisions were repealed simultaneously, the increase in tax liability could be greater or less than the sum of the two separate tax expenditures, because each is estimated assuming that the other remains in force. In addition, the estimates reported in Table 19–1 are the totals of individual and corporate income tax revenue effects reported in Table 19–2 and do not reflect any possible interactions between individual and corporate income tax receipts. For this reason, the estimates in Table 19–1 should be regarded as approximations. Present-Value Estimates The annual value of tax expenditures for tax deferrals is reported on a cash basis in all tables except Table 19–4. Cash-based estimates reflect the difference between taxes deferred in the current year and incoming revenues that are received due to deferrals of taxes from prior years. Although such estimates are useful as a measure of cash flows into the Government, they do not accurately reflect the true economic cost of these provisions. For example, for a provision where activity levels have changed, so that incoming tax receipts from past deferrals are greater than deferred receipts from new activity, the cash-basis tax expenditure estimate can be negative, despite the fact that in present-value terms current deferrals do have a real cost to the Government. Alternatively, in the case of a newly enacted deferral provision, a cash-based estimate can overstate the real effect on receipts to the Government because the newly deferred taxes will ultimately be received. Present-value estimates, which are a useful complement to the cash-basis estimates for provisions involving deferrals, are discussed below. Discounted present-value estimates of revenue effects are presented in Table 19–4 for certain provisions that involve tax deferrals or other long-term revenue effects. These estimates complement the cash-based tax expenditure estimates presented in the other tables. The present-value estimates represent the revenue effects, net of future tax payments, that follow from activities undertaken during calendar year 2004 which cause the deferrals or other long-term revenue effects. For instance, a pension contribution in 2004 would cause a deferral of tax payments on wages in 2004 and on pension earnings on this contribution (e.g., interest) in later years. In some future year, however, the 2004 pension contribution and accrued earnings will be paid out and taxes will be due; these receipts are included in the present-value estimate. In general, this conceptual approach is similar to the one used for reporting the budgetary effects of credit programs, where direct loans and guarantees in a given year affect future cash flows. Outlay Equivalents The concept of ‘‘outlay equivalents’’ is another theoretical measure of the budget effect of tax expenditures. It is the amount of budget outlays that would be required to provide the taxpayer the same after-tax income as would be received through the tax provision. The outlay-equivalent measure allows the cost of a tax expenditure to be compared with a direct Federal outlay on a more even footing. Outlay equivalents are reported in Table 19–5. 317 19. TAX EXPENDITURES Table 19–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES (in millions of dollars) Total from corporations and individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 National Defense 1 Exclusion of benefits and allowances to armed forces personnel ........................................................... 2,460 2,490 2,520 2,540 2,560 2,590 2,620 12,830 International affairs: 2 Exclusion of income earned abroad by U.S. citizens ............................................................................... 2,680 2,750 2,810 2,940 3,100 3,270 3,450 15,570 3 Exclusion of certain allowances for Federal employees abroad .............................................................. 850 900 950 1,000 1,050 1,100 1,160 5,260 4 Extraterritorial income exclusion ................................................................................................................ 5,500 5,170 4,270 1,820 220 40 20 6,370 5 Inventory property sales source rules exception ....................................................................................... 1,500 1,620 1,770 1,950 2,200 2,430 2,630 10,980 6 Deferral of income from controlled foreign corporations (normal tax method) ........................................ 7,240 7,000 7,440 7,960 8,510 9,100 9,730 42,740 7 Deferred taxes for financial firms on certain income earned overseas ................................................... 2,130 2,190 2,260 960 .............. .............. .............. 3,220 General science, space, and technology 8 Expensing of research and experimentation expenditures (normal tax method) ..................................... –2,330 4,110 7,920 6,990 6,260 5,360 4,800 31,330 9 Credit for increasing research activities ..................................................................................................... 4,680 5,130 2,140 910 390 180 50 3,670 Energy 10 Expensing of exploration and development costs, fuels ........................................................................... 260 400 370 280 240 190 140 1,220 11 Excess of percentage over cost depletion, fuels ...................................................................................... 1,320 1,280 1,350 1,420 1,470 1,510 1,550 7,300 12 Alternative fuel production credit ................................................................................................................ 1,040 1,040 1,040 1,040 420 .............. .............. 2,500 13 Exception from passive loss limitation for working interests in oil and gas properties ........................... 20 20 20 20 20 20 20 100 14 Capital gains treatment of royalties on coal .............................................................................................. 70 70 80 80 100 70 60 390 15 Exclusion of interest on energy facility bonds ........................................................................................... 100 100 110 110 120 120 130 590 16 Enhanced oil recovery credit ...................................................................................................................... 330 340 340 350 360 370 390 1,810 17 New technology credit ............................................................................................................................... 330 470 620 700 800 820 690 3,630 18 Alcohol fuel credits 1 .................................................................................................................................. 30 30 30 30 40 40 40 180 19 Tax credit and deduction for clean-fuel burning vehicles ......................................................................... 70 70 50 –20 –70 –80 –60 –180 20 Exclusion of conservation subsidies provided by public utilities .............................................................. 100 100 100 100 90 90 90 470 Natural resources and environment 21 Expensing of exploration and development costs, nonfuel minerals ....................................................... 230 230 250 250 250 270 270 1,290 22 Excess of percentage over cost depletion, nonfuel minerals ................................................................... .............. .............. .............. .............. .............. .............. 10 10 23 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities ................................ 500 530 570 600 630 650 680 3,130 24 Capital gains treatment of certain timber income ..................................................................................... 70 70 80 80 100 70 60 390 25 Expensing of multiperiod timber growing costs ......................................................................................... 340 350 370 380 400 410 430 1,990 26 Tax incentives for preservation of historic structures ............................................................................... 300 320 330 340 360 380 400 1,810 27 Expensing of capital costs with respect to complying with EPA sulfur regulations ................................ .............. 10 .............. 10 20 40 10 90 28 Exclusion of gain or loss on sale or exchange of certain brownfield sites ............................................. .............. .............. .............. –10 –30 –40 –40 –120 Agriculture 29 Expensing of certain capital outlays .......................................................................................................... 100 110 130 130 130 140 140 670 30 Expensing of certain multiperiod production costs .................................................................................... 50 60 70 70 80 80 80 380 31 Treatment of loans forgiven for solvent farmers ....................................................................................... 10 10 10 10 10 10 10 50 32 Capital gains treatment of certain income ................................................................................................. 670 730 760 820 990 720 580 3,870 33 Income averaging for farmers .................................................................................................................... 40 40 40 40 40 40 40 200 34 Deferral of gain on sale of farm refiners ................................................................................................... 10 10 10 20 20 20 20 90 35 Bio-Diesel tax credit .................................................................................................................................. .............. 30 30 10 .............. .............. .............. 40 Commerce and housing Financial institutions and insurance: 36 Exemption of credit union income ......................................................................................................... 1,270 1,330 1,390 1,440 1,510 1,570 1,640 7,550 37 Excess bad debt reserves of financial institutions ................................................................................ –20 –20 –10 –10 –10 .............. .............. –30 38 Exclusion of interest on life insurance savings ..................................................................................... 20,830 22,750 24,070 26,180 28,770 30,980 33,610 143,610 39 Special alternative tax on small property and casualty insurance companies .................................... 10 10 10 10 10 10 10 50 40 Tax exemption of certain insurance companies owned by tax-exempt organizations ........................ 180 190 210 220 230 250 260 1,170 41 Small life insurance company deduction ............................................................................................... 80 80 80 80 80 80 80 400 Housing: 42 Exclusion of interest on owner-occupied mortgage subsidy bonds ..................................................... 1,020 1,110 1,180 1,230 1,320 1,350 1,390 6,470 43 Exclusion of interest on rental housing bonds ...................................................................................... 360 390 410 420 460 470 480 2,240 44 Deductibility of mortgage interest on owner-occupied homes .............................................................. 61,450 68,870 76,030 81,990 88,990 95,770 102,760 445,540 45 Deductibility of State and local property tax on owner-occupied homes ............................................ 19,930 16,590 14,830 14,110 13,400 13,000 12,800 68,140 46 Deferral of income from post 1987 installment sales ........................................................................... 1,100 1,120 1,140 1,160 1,190 1,200 1,320 6,010 47 Capital gains exclusion on home sales ................................................................................................. 29,730 32,840 36,270 40,050 44,240 54,660 71,960 247,180 48 Exclusion of net imputed rental income on owner-occupied homes ................................................... 24,590 28,600 29,720 33,210 36,860 40,630 44,786 185,206 49 Exception from passive loss rules for $25,000 of rental loss .............................................................. 5,030 4,900 4,750 4,580 4,410 4,240 4,080 22,060 50 Credit for low-income housing investments .......................................................................................... 3,660 3,850 4,010 4,190 4,390 4,610 4,850 22,050 51 Accelerated depreciation on rental housing (normal tax method) ....................................................... 750 –156 –993 –1,846 –2,697 –3,961 –5,901 –15,398 Commerce: 52 Cancellation of indebtedness ................................................................................................................. 30 30 30 40 40 40 40 190 53 Exceptions from imputed interest rules ................................................................................................. 50 50 50 50 50 50 50 250 54 Capital gains (except agriculture, timber, iron ore, and coal) .............................................................. 25,150 27,200 28,370 30,450 36,840 26,900 21,630 144,190 55 Capital gains exclusion of small corporation stock ............................................................................... 160 210 250 300 350 390 430 1,720 318 ANALYTICAL PERSPECTIVES Table 19–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES—Continued (in millions of dollars) Total from corporations and individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 56 Step-up basis of capital gains at death ................................................................................................ 24,200 26,140 28,760 31,630 34,790 35,560 33,680 164,420 57 Carryover basis of capital gains on gifts .............................................................................................. 210 240 290 290 310 430 850 2,170 58 Ordinary income treatment of loss from small business corporation stock sale ................................. 50 50 50 50 50 50 50 250 59 Accelerated depreciation of buildings other than rental housing (normal tax method) ....................... –3,250 –4,180 –4,790 –6,940 –10,360 –14,740 –21,240 –58,060 60 Accelerated depreciation of machinery and equipment (normal tax method) ..................................... 44,690 –11,000 –37,830 –30,920 –27,950 –26,190 –25,760 –148,650 61 Expensing of certain small investments (normal tax method) ............................................................. 1,520 4,820 1,650 –490 –30 140 230 1,500 62 Amortization of start-up costs (normal tax method) ............................................................................. 80 50 .............. –40 –90 –140 –170 –440 63 Graduated corporation income tax rate (normal tax method) .............................................................. 2,450 3,190 3,730 3,820 3,920 4,020 4,140 19,630 64 Exclusion of interest on small issue bonds .......................................................................................... 450 490 510 540 580 590 610 2,830 65 Deduction for U.S. production activities ................................................................................................ .............. 3,270 5,420 8,750 11,230 11,670 15,860 52,930 66 Special rules for certain film and TV production .................................................................................. .............. 90 110 90 70 –40 –90 140 Transportation 67 Deferral of tax on shipping companies ...................................................................................................... 20 20 20 20 20 20 20 100 68 Exclusion of reimbursed employee parking expenses .............................................................................. 2,470 2,590 2,730 2,880 3,030 3,180 3,330 15,150 69 Exclusion for employer-provided transit passes ........................................................................................ 410 480 550 630 710 790 880 3,560 70 Tax credit for certain expenditures for maintaining railroad tracks .......................................................... .............. 70 140 150 110 50 30 480 Community and regional development 71 Investment credit for rehabilitation of structures (other than historic) ...................................................... 40 40 40 40 40 40 40 200 72 Exclusion of interest for airport, dock, and similar bonds ........................................................................ 850 930 980 1,030 1,100 1,130 1,170 5,410 73 Exemption of certain mutuals’ and cooperatives’ income ......................................................................... 60 60 60 70 70 70 70 340 74 Empowerment zones, Enterprise communities, and Renewal communities ............................................ 1,080 1,120 1,210 1,340 1,480 1,740 1,130 6,900 75 New markets tax credit .............................................................................................................................. 290 430 610 830 870 790 670 3,770 76 Expensing of environmental remediation costs ......................................................................................... 80 70 20 –10 –10 –20 –10 –30 77 Deferral of capital gains with respect of dispositions of transmission property ....................................... .............. –490 –620 –530 –230 100 360 –920 Education, training, employment, and social services Education: 78 Exclusion of scholarship and fellowship income (normal tax method) ................................................ 1,320 1,400 1,460 1,530 1,600 1,680 1,750 8,020 79 HOPE tax credit .................................................................................................................................... 3,320 3,410 3,220 3,320 3,350 3,420 3,580 16,890 80 Lifetime Learning tax credit ................................................................................................................... 2,190 2,130 2,080 2,310 2,340 2,380 2,450 11,560 81 Education Individual Retirement Accounts ............................................................................................ 110 140 190 240 300 370 440 1,540 82 Deductibility of student-loan interest ...................................................................................................... 760 780 800 810 820 830 840 4,100 83 Deduction for higher education expenses ............................................................................................. 1,280 1,830 1,840 .............. .............. .............. .............. 1,840 84 State prepaid tuition plans ..................................................................................................................... 210 490 650 740 830 920 1,010 4,150 85 Exclusion of interest on student-loan bonds ......................................................................................... 290 310 340 350 370 380 390 1,830 86 Exclusion of interest on bonds for private nonprofit educational facilities ........................................... 970 1,050 1,120 1,180 1,250 1,290 1,330 6,170 87 Credit for holders of zone academy bonds .......................................................................................... 90 110 130 130 140 140 140 680 88 Exclusion of interest on savings bonds redeemed to finance educational expenses ......................... 10 10 20 20 20 20 20 100 89 Parental personal exemption for students age 19 or over ................................................................... 3,200 2,670 2,110 1,840 1,630 1,450 1,340 8,370 90 Deductibility of charitable contributions (education) .............................................................................. 3,690 3,420 3,680 4,030 4,260 4,550 4,870 21,390 91 Exclusion of employer-provided educational assistance ....................................................................... 530 560 590 620 650 690 720 3,270 92 Special deduction for teacher expenses ............................................................................................... 150 160 150 .............. .............. .............. .............. 150 93 Discharge of student loan indebtedness ............................................................................................... .............. 20 20 20 20 20 20 100 Training, employment, and social services: 94 Work opportunity tax credit .................................................................................................................... 280 250 280 190 60 30 10 570 95 Welfare-to-work tax credit ...................................................................................................................... 60 60 80 60 20 10 .............. 170 96 Employer provided child care exclusion ................................................................................................ 600 620 810 930 970 1,010 1,060 4,780 97 Employer-provided child care credit ...................................................................................................... .............. 8 10 10 10 10 10 50 98 Assistance for adopted foster children .................................................................................................. 290 310 350 380 420 460 500 2,110 99 Adoption credit and exclusion ................................................................................................................ 450 500 540 560 570 580 600 2,850 100 Exclusion of employee meals and lodging (other than military) .......................................................... 810 850 890 930 970 1,010 1,060 4,860 101 Child credit 2 .......................................................................................................................................... 22,400 32,710 32,810 32,900 32,860 32,790 32,670 164,030 102 Credit for child and dependent care expenses ..................................................................................... 2,990 3,140 2,810 1,900 1,800 1,710 1,630 9,850 103 Credit for disabled access expenditures ............................................................................................... 30 40 40 40 40 50 50 220 104 Deductibility of charitable contributions, other than education and health .......................................... 27,370 29,670 32,550 34,500 36,790 39,410 42,210 185,460 105 Exclusion of certain foster care payments ............................................................................................ 440 440 440 450 450 460 470 2,270 106 Exclusion of parsonage allowances ...................................................................................................... 430 460 480 510 540 580 610 2,720 Health 107 Exclusion of employer contributions for medical insurance premiums and medical care ....................... 102,250 112,160 125,690 139,060 152,560 166,190 176,740 760,240 108 Self-employed medical insurance premiums ............................................................................................. 3,330 3,780 4,330 4,800 5,260 5,760 6,250 26,400 109 Medical Savings Accounts/Health Savings Accounts ................................................................................ 620 1,050 1,830 2,650 3,510 3,960 3,910 15,860 110 Deductibility of medical expenses .............................................................................................................. 7,380 8,590 9,140 9,970 11,100 11,890 12,670 54,770 111 Exclusion of interest on hospital construction bonds ................................................................................ 1,870 2,020 2,160 2,260 2,400 2,470 2,550 11,840 112 Deductibility of charitable contributions (health) ........................................................................................ 3,090 3,350 3,670 3,890 4,150 4,450 4,770 20,930 113 Tax credit for orphan drug research .......................................................................................................... 180 210 230 260 290 330 360 1,470 114 Special Blue Cross/Blue Shield deduction ................................................................................................ 400 390 360 390 340 370 430 1,890 115 Tax credit for health insurance purchased by certain displaced and retired individuals 3 ...................... 50 60 40 40 40 50 50 220 319 19. TAX EXPENDITURES Table 19–1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES—Continued (in millions of dollars) Total from corporations and individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 Income security 116 Exclusion of railroad retirement system benefits ....................................................................................... 400 400 400 400 400 400 400 2,000 117 Exclusion of workers’ compensation benefits ............................................................................................ 5,490 5,730 5,940 6,100 6,300 6,520 6,730 31,590 118 Exclusion of public assistance benefits (normal tax method) ................................................................... 410 430 450 470 490 510 480 2,400 119 Exclusion of special benefits for disabled coal miners ............................................................................. 60 50 50 50 40 40 40 220 120 Exclusion of military disability pensions ..................................................................................................... 100 100 110 110 110 120 120 570 Net exclusion of pension contributions and earnings: 121 Employer plans ...................................................................................................................................... 46,970 50,330 51,050 52,570 47,530 45,310 44,570 241,030 122 401(k) plans ........................................................................................................................................... 47,730 45,870 48,140 51,800 56,140 60,930 66,400 283,410 123 Individual Retirement Accounts ............................................................................................................. 7,450 7,340 7,310 6,990 6,680 6,220 5,650 32,850 124 Low and moderate income savers credit .............................................................................................. 970 1,100 1,170 700 .............. .............. .............. 1,870 125 Keogh plans ........................................................................................................................................... 8,830 9,380 9,980 10,650 11,610 12,650 13,780 58,670 Exclusion of other employee benefits: 126 Premiums on group term life insurance ................................................................................................ 2,070 2,090 2,110 2,110 2,150 2,180 2,200 10,750 127 Premiums on accident and disability insurance .................................................................................... 260 280 290 300 310 320 330 1,550 128 Small business retirement plan credit ........................................................................................................ 80 100 120 140 150 150 140 700 129 Income of trusts to finance supplementary unemployment benefits ........................................................ 20 20 20 20 20 20 20 100 130 Special ESOP rules ................................................................................................................................... 1,920 2,060 2,220 2,400 2,580 2,780 3,000 12,980 131 Additional deduction for the blind .............................................................................................................. 30 40 40 40 40 40 40 200 132 Additional deduction for the elderly ........................................................................................................... 1,700 1,810 1,960 1,940 1,900 1,930 1,950 9,680 133 Tax credit for the elderly and disabled ...................................................................................................... 20 20 20 20 10 10 10 70 134 Deductibility of casualty losses .................................................................................................................. 550 250 270 280 290 300 320 1,460 135 Earned income tax credit 4 ......................................................................................................................... 4,890 4,980 5,420 5,170 5,290 5,480 5,600 26,960 Social Security Exclusion of social security benefits 136 Social Security benefits for retired workers .......................................................................................... 19,200 19,480 19,770 20,470 20,900 21,260 23,720 106,120 137 Social Security benefits for disabled ..................................................................................................... 3,580 3,740 3,870 4,110 4,290 4,500 4,910 21,680 138 Social Security benefits for dependents and survivors ........................................................................ 4,140 4,120 3,990 4,030 3,880 3,920 4,060 19,880 Veterans benefits and services 139 Exclusion of veterans death benefits and disability compensation .......................................................... 3,300 3,560 3,750 4,030 4,190 4,360 4,520 20,850 140 Exclusion of veterans pensions ................................................................................................................. 110 120 120 120 120 130 140 630 141 Exclusion of GI bill benefits ....................................................................................................................... 130 150 160 170 180 190 200 900 142 Exclusion of interest on veterans housing bonds ..................................................................................... 50 50 50 60 60 60 60 290 General purpose fiscal assistance 143 Exclusion of interest on public purpose State and local bonds ............................................................... 26,150 26,530 26,610 26,350 27,140 27,950 28,790 136,840 144 Deductibility of nonbusiness state and local taxes other than on owner-occupied homes ..................... 45,290 39,090 34,620 32,890 31,850 31,760 32,120 163,240 145 Tax credit for corporations receiving income from doing business in U.S. possessions ........................ 1,000 900 500 50 .............. .............. .............. 550 Interest 146 Deferral of interest on U.S. savings bonds ............................................................................................... 50 50 50 50 60 70 70 300 Addendum: Aid to State and local governments Deductibility of: Property taxes on owner-occupied homes ............................................................................................ 19,930 16,590 14,830 14,110 13,400 13,000 12,800 68,140 Nonbusiness State and local taxes other than on owner-occupied homes ........................................ 45,290 39,090 34,620 32,890 31,850 31,760 32,120 163,240 Exclusion of interest on State and local bonds for: Public purposes ..................................................................................................................................... 26,150 26,530 26,610 26,350 27,140 27,950 28,790 136,840 Energy facilities ..................................................................................................................................... 100 100 110 110 120 120 130 590 Water, sewage, and hazardous waste disposal facilities ..................................................................... 500 530 570 600 630 650 680 3,130 Small-issues ........................................................................................................................................... 450 490 510 540 580 590 610 2,830 Owner-occupied mortgage subsidies ..................................................................................................... 1,020 1,110 1,180 1,230 1,320 1,350 1,390 6,470 Rental housing ....................................................................................................................................... 360 390 410 420 460 470 480 2,240 Airports, docks, and similar facilities ..................................................................................................... 850 930 980 1,030 1,100 1,130 1,170 5,410 Student loans ......................................................................................................................................... 290 310 340 350 370 380 390 1,830 Private nonprofit educational facilities ................................................................................................... 970 1,050 1,120 1,180 1,250 1,290 1,330 6,170 Hospital construction .............................................................................................................................. 1,870 2,020 2,160 2,260 2,400 2,470 2,550 11,840 Veterans’ housing .................................................................................................................................. 50 50 50 60 60 60 60 290 Credit for holders of zone academy bonds ............................................................................................... 90 110 130 130 140 140 140 680 1 In addition, the partial exemption from the excise tax and excise credits for alcohol fuels result in a reduction in excise tax receipts (in millions of dollars) as follows: 2004 $1,450; 2005 $1,490; 2006 $1,550; 2007 $1,590; 2008 $1,620; 2009 $1,650; and 2010 $1,680. 2 The figures in the table indicate the effect of the child tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2004 $8,857; 2005 $13,516; 2006 $13,180; 2007 $12,549; 2008 $12,040; 2009 $11,693 and 2010 $11,364 3 In addition to the receipts shown, there are outlays of $70 million in 2004, $90 million in 2005, $100 million in 2006, $120 million in 2007, $130 million in 2008, and $140 million in 2009 and $150 million in 2010 projected. 4 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2004 $33,134;2005 $33,790; 2006 $34,132; 2007 $34,481; 2008 $34,723; 2009 $35,517; and 2010 $36,099. Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method. All estimates have been rounded to the nearest $10 million. Provisions with estimates that rounded to zero in each year are not included in the table. 320 ANALYTICAL PERSPECTIVES Table 19–2. ESTIMATES OF TAX EXPENDITURES FOR THE CORPORATE AND INDIVIDUAL INCOME TAXES (in millions of dollars) Corporations Individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 2004 2005 2006 2007 2008 2009 2010 2006–10 National Defense 1 Exclusion of benefits and allowances to armed forces personnel ........................ ............ ............ ................ ................ ................ ................ ................ ................ 2,460 2,490 2,520 2,540 2,560 2,590 2,620 12,830 International affairs: 2 Exclusion of income earned abroad by U.S. citizens .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 2,680 2,750 2,810 2,940 3,100 3,270 3,450 15,570 3 Exclusion of certain allowances for Federal employees abroad ......................... ............ ............ ................ ................ ................ ................ ................ ................ 850 900 950 1000 1050 1100 1160 5,260 4 Extraterritorial income exclusion ............... 5,500 5,170 4,270 1,820 220 40 20 6,370 ................ ................ ................ ................ ................ ................ ................ ................ 5 Inventory property sales source rules exception ................................................... 1,500 1,620 1,770 1,950 2,200 2,430 2,630 10,980 ................ ................ ................ ................ ................ ................ ................ ................ 6 Deferral of income from controlled foreign corporations (normal tax method) ........ 7,240 7,000 7,440 7,960 8,510 9,100 9,730 42,740 ................ ................ ................ ................ ................ ................ ................ ................ 7 Deferred taxes for financial firms on certain income earned overseas ............... 2,130 2,190 2,260 960 ................ ................ ................ 3,220 ................ ................ ................ ................ ................ ................ ................ ................ General science, space, and technology 8 Expensing of research and experimentation expenditures (normal tax method) .......................................................... –2,280 4,010 7,770 6,850 6,140 5,250 4,700 30,710 –50 100 150 140 120 110 100 620 9 Credit for increasing research activities ... 4,630 5,080 2,100 910 390 180 50 3,630 50 50 40 ................ ................ ................ ................ 40 Energy 10 Expensing of exploration and development costs, fuels ................................... 230 350 320 240 210 160 120 1,050 30 50 50 40 30 30 20 170 11 Excess of percentage over cost depletion, fuels ....................................................... 1,210 1,180 1,240 1,310 1,350 1,390 1,430 6,720 110 100 110 110 120 120 120 580 12 Alternative fuel production credit .............. 1,000 1,000 1,000 1,000 400 ................ ................ 2,400 40 40 40 40 20 ................ ................ 100 13 Exception from passive loss limitation for working interests in oil and gas properties ...................................................... ............ ............ ................ ................ ................ ................ ................ ................ 20 20 20 20 20 20 20 100 14 Capital gains treatment of royalties on coal ........................................................ ............ ............ ................ ................ ................ ................ ................ ................ 70 70 80 80 100 70 60 390 15 Exclusion of interest on energy facility bonds ..................................................... 20 20 20 20 20 20 20 100 80 80 90 90 100 100 110 490 16 Enhanced oil recovery credit .................... 300 310 310 320 330 340 350 1,650 30 30 30 30 30 30 40 160 17 New technology credit ............................... 330 470 620 700 800 820 690 3,630 ................ ................ ................ ................ ................ ................ ................ ................ 18 Alcohol fuel credits 1 .................................. 20 20 20 20 30 30 30 130 10 10 10 10 10 10 10 50 19 Tax credit and deduction for clean-fuel burning vehicles .................................... 20 30 40 20 –10 –20 –10 20 50 40 10 –40 –60 –60 –50 –200 20 Exclusion of conservation subsidies provided by public utilities .......................... ............ ............ ................ ................ ................ ................ ................ ................ 100 100 100 100 90 90 90 470 Natural resources and environment 21 Expensing of exploration and development costs, nonfuel minerals ................ 210 210 230 230 230 250 250 1,190 20 20 20 20 20 20 20 100 22 Excess of percentage over cost depletion, nonfuel minerals .................................... ............ ............ ................ ................ ................ ................ 10 10 ................ ................ ................ ................ ................ ................ ................ ................ 23 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities 110 110 110 120 120 120 130 600 390 420 460 480 510 530 550 2,530 24 Capital gains treatment of certain timber income ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 70 70 80 80 100 70 60 390 25 Expensing of multiperiod timber growing costs ...................................................... 230 240 250 260 280 290 300 1,380 110 110 120 120 120 120 130 610 26 Tax incentives for preservation of historic structures ............................................... 230 240 250 260 270 290 300 1,370 70 80 80 80 90 90 100 440 27 Expensing of capital costs with respect to complying with EPA sulfur regulations ............ 10 ................ 10 20 40 10 90 ................ ................ ................ ................ ................ ................ ................ ................ 28 Exclusion of gain or loss on sale or exchange of certain brownfield sites ....... ............ ............ ................ –10 –20 –30 –30 –90 ................ ................ ................ ................ –10 –10 –10 –30 Agriculture 29 Expensing of certain capital outlays ......... 20 20 20 20 20 20 20 100 80 90 110 110 110 120 120 570 30 Expensing of certain multiperiod production costs ............................................... 10 10 10 10 10 10 10 50 40 50 60 60 70 70 70 330 31 Treatment of loans forgiven for solvent farmers ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 10 10 10 10 10 10 10 50 32 Capital gains treatment of certain income ............ ............ ................ ................ ................ ................ ................ ................ 670 730 760 820 990 720 580 3,870 33 Income averaging for farmers ................... ............ ............ ................ ................ ................ ................ ................ ................ 40 40 40 40 40 40 40 200 34 Deferral of gain on sale of farm refiners 10 10 10 20 20 20 20 90 ................ ................ ................ ................ ................ ................ ................ ................ 35 Bio-Diesel tax credit .................................. ............ ............ ................ ................ ................ ................ ................ ................ ................ 30 30 10 ................ ................ ................ 40 Commerce and housing Financial institutions and insurance: 36 Exemption of credit union income ........ 1,270 1,330 1,390 1,440 1,510 1,570 1,640 7,550 ................ ................ ................ ................ ................ ................ ................ ................ 37 Excess bad debt reserves of financial institutions ......................................... –20 –20 –10 –10 –10 ................ ................ –30 ................ ................ ................ ................ ................ ................ ................ ................ 38 Exclusion of interest on life insurance savings .............................................. 2,010 2,180 2,270 2,570 2,880 3,070 3,330 14,120 18,820 20,570 21,800 23,610 25,890 27,910 30,280 129,490 39 Special alternative tax on small property and casualty insurance companies .................................................... 10 10 10 10 10 10 10 50 ................ ................ ................ ................ ................ ................ ................ ................ 40 Tax exemption of certain insurance companies owned by tax-exempt organizations ........................................ 180 190 210 220 230 250 260 1,170 ................ ................ ................ ................ ................ ................ ................ ................ 41 Small life insurance company deduction ..................................................... 80 80 80 80 80 80 80 400 ................ ................ ................ ................ ................ ................ ................ ................ Housing: 321 19. TAX EXPENDITURES Table 19–2. ESTIMATES OF TAX EXPENDITURES FOR THE CORPORATE AND INDIVIDUAL INCOME TAXES—Continued (in millions of dollars) Corporations Individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 2004 2005 2006 2007 2008 2009 2010 2006–10 42 Exclusion of interest on owner-occupied mortgage subsidy bonds .......... 220 230 230 240 250 250 260 1,230 800 880 950 990 1,070 1,100 1,130 5,240 43 Exclusion of interest on rental housing bonds ................................................. 80 80 80 80 90 90 90 430 280 310 330 340 370 380 390 1,810 44 Deductibility of mortgage interest on owner-occupied homes ..................... ............ ............ ................ ................ ................ ................ ................ ................ 61,450 68,870 76,030 81,990 88,990 95,770 102,760 445,540 45 Deductibility of State and local property tax on owner-occupied homes ......... ............ ............ ................ ................ ................ ................ ................ ................ 19,930 16,590 14,830 14,110 13,400 13,000 12,800 68,140 46 Deferral of income from post 1987 installment sales .................................. 290 290 300 300 310 310 320 1,540 810 830 840 860 880 890 1,000 4,470 47 Capital gains exclusion on home sales ............ ............ ................ ................ ................ ................ ................ ................ 29,730 32,840 36,270 40,050 44,240 54,660 71,960 247,180 48 Exclusion of net imputed rental income on owner-occupied homes ............... ............ ............ ................ ................ ................ ................ ................ ................ 24,590 28,600 29,720 33,210 36,860 40,630 44,786 185,206 49 Exception from passive loss rules for $25,000 of rental loss ....................... ............ ............ ................ ................ ................ ................ ................ ................ 5,030 4,900 4,750 4,580 4,410 4,240 4,080 22,060 50 Credit for low-income housing investments ................................................. 2,930 3,080 3,210 3,350 3,510 3,690 3,880 17,640 730 770 800 840 880 920 970 4,410 51 Accelerated depreciation on rental housing (normal tax method) ........... –10 –50 –100 –140 –200 –280 –390 –1,100 760 –110 –900 –1,700 –2,500 –3,690 –5,510 –14,300 Commerce: 52 Cancellation of indebtedness ................ ............ ............ ................ ................ ................ ................ ................ ................ 30 30 30 40 40 40 40 190 53 Exceptions from imputed interest rules ............ ............ ................ ................ ................ ................ ................ ................ 50 50 50 50 50 50 50 250 54 Capital gains (except agriculture, timber, iron ore, and coal) .................... ............ ............ ................ ................ ................ ................ ................ ................ 25,150 27,200 28,370 30,450 36,840 26,900 21,630 144,190 55 Capital gains exclusion of small corporation stock ................................... ............ ............ ................ ................ ................ ................ ................ ................ 160 210 250 300 350 390 430 1,720 56 Step-up basis of capital gains at death ............ ............ ................ ................ ................ ................ ................ ................ 24,200 26,140 28,760 31,630 34,790 35,560 33,680 164,420 57 Carryover basis of capital gains on gifts .................................................... ............ ............ ................ ................ ................ ................ ................ ................ 210 240 290 290 310 430 850 2,170 58 Ordinary income treatment of loss from small business corporation stock sale .................................................... ............ ............ ................ ................ ................ ................ ................ ................ 50 50 50 50 50 50 50 250 59 Accelerated depreciation of buildings other than rental housing (normal tax method) ....................................... –2,980 –3,850 –4,340 –6,170 –9,220 –12,620 –17,320 –49,670 –280 –330 –450 –760 –1,140 –2,110 –3,930 –8,390 60 Accelerated depreciation of machinery and equipment (normal tax method) 37,080 –8,780 –32,880 –26,480 –23,310 –21,260 –20,290 –124,220 7,610 –2,220 –4,950 –4,440 –4,640 –4,930 –5,470 –24,430 61 Expensing of certain small investments (normal tax method) ......................... 680 1,780 680 –390 –140 –30 –10 110 840 3,040 970 –100 110 170 240 1,390 62 Amortization of start-up costs (normal tax method) ....................................... 70 40 ................ –40 –80 –120 –150 –390 10 10 ................ ................ –10 –20 –20 –50 63 Graduated corporation income tax rate (normal tax method) ......................... 2,450 3,190 3,730 3,820 3,920 4,020 4,140 19,630 ................ ................ ................ ................ ................ ................ ................ ................ 64 Exclusion of interest on small issue bonds ................................................. 100 100 100 100 110 110 110 530 350 390 410 440 470 480 500 2,300 65 Deduction for U.S. production activities ............ 2,560 4,330 7,110 9,130 9,470 12,860 42,900 ................ 710 1,090 1,640 2,100 2,200 3,000 10,030 66 Special rules for certain film and TV production .......................................... ............ 70 90 70 60 –30 –70 120 ................ 20 20 20 10 –10 –20 20 Transportation 67 Deferral of tax on shipping companies .... 20 20 20 20 20 20 20 100 ................ ................ ................ ................ ................ ................ ................ ................ 68 Exclusion of reimbursed employee parking expenses ......................................... ............ ............ ................ ................ ................ ................ ................ ................ 2,470 2,590 2,730 2,880 3,030 3,180 3,330 15,150 69 Exclusion for employer-provided transit passes ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 410 480 550 630 710 790 880 3,560 70 Tax credit for certain expenditures for maintaining railroad tracks .................... ............ 70 140 150 110 50 30 480 ................ ................ ................ ................ ................ ................ ................ ................ Community and regional development 71 Investment credit for rehabilitation of structures (other than historic) .............. 20 20 20 20 20 20 20 100 20 20 20 20 20 20 20 100 72 Exclusion of interest for airport, dock, and similar bonds ......................................... 180 190 190 200 210 210 220 1,030 670 740 790 830 890 920 950 4,380 73 Exemption of certain mutuals’ and cooperatives’ income ................................ 60 60 60 70 70 70 70 340 ................ ................ ................ ................ ................ ................ ................ ................ 74 Empowerment zones, Enterprise communities, and Renewal communities ......... 280 290 310 340 370 420 190 1,630 800 830 900 1,000 1,110 1,320 940 5,270 75 New markets tax credit ............................. 70 110 150 210 220 200 170 950 220 320 460 620 650 590 500 2,820 76 Expensing of environmental remediation costs ...................................................... 70 60 20 –10 –10 –20 –10 –30 10 10 ................ ................ ................ ................ ................ ................ 77 Deferral of capital gains with respect of dispositions of transmission property ... ............ –490 –620 –530 –230 100 360 –920 ................ ................ ................ ................ ................ ................ ................ ................ Education, training, employment, and social services Education: 78 Exclusion of scholarship and fellowship income (normal tax method) ............ ............ ............ ................ ................ ................ ................ ................ ................ 1,320 1,400 1,460 1,530 1,600 1,680 1,750 8,020 79 HOPE tax credit .................................... ............ ............ ................ ................ ................ ................ ................ ................ 3,320 3,410 3,220 3,320 3,350 3,420 3,580 16,890 80 Lifetime Learning tax credit .................. ............ ............ ................ ................ ................ ................ ................ ................ 2,190 2,130 2,080 2,310 2,340 2,380 2,450 11,560 81 Education Individual Retirement Accounts ................................................ ............ ............ ................ ................ ................ ................ ................ ................ 110 140 190 240 300 370 440 1,540 82 Deductibility of student-loan interest .... ............ ............ ................ ................ ................ ................ ................ ................ 760 780 800 810 820 830 840 4,100 83 Deduction for higher education expenses ............................................... ............ ............ ................ ................ ................ ................ ................ ................ 1,280 1,830 1,840 ................ ................ ................ ................ 1,840 84 State prepaid tuition plans .................... ............ ............ ................ ................ ................ ................ ................ ................ 210 490 650 740 830 920 1,010 4,150 85 Exclusion of interest on student-loan bonds ................................................. 60 60 70 70 70 70 70 350 230 250 270 280 300 310 320 1,480 322 ANALYTICAL PERSPECTIVES Table 19–2. ESTIMATES OF TAX EXPENDITURES FOR THE CORPORATE AND INDIVIDUAL INCOME TAXES—Continued (in millions of dollars) Corporations Individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 2004 2005 2006 2007 2008 2009 2010 2006–10 86 Exclusion of interest on bonds for private nonprofit educational facilities .. 210 210 220 230 230 240 250 1,170 760 840 900 950 1020 1050 1080 5,000 87 Credit for holders of zone academy bonds ................................................. 90 110 130 130 140 140 140 680 ................ ................ ................ ................ ................ ................ ................ ................ 88 Exclusion of interest on savings bonds redeemed to finance educational expenses ............................................... ............ ............ ................ ................ ................ ................ ................ ................ 10 10 20 20 20 20 20 100 89 Parental personal exemption for students age 19 or over ....................... ............ ............ ................ ................ ................ ................ ................ ................ 3,200 2,670 2,110 1,840 1,630 1,450 1,340 8,370 90 Deductibility of charitable contributions (education) ........................................ 510 540 560 590 620 660 700 3,130 3,180 2,880 3,120 3,440 3,640 3,890 4,170 18,260 91 Exclusion of employer-provided educational assistance ........................... ............ ............ ................ ................ ................ ................ ................ ................ 530 560 590 620 650 690 720 3,270 92 Special deduction for teacher expenses ............................................... ............ ............ ................ ................ ................ ................ ................ ................ 150 160 150 ................ ................ ................ ................ 150 93 Discharge of student loan indebtedness ................................................... ............ ............ ................ ................ ................ ................ ................ ................ ................ 20 20 20 20 20 20 100 Training, employment, and social services: 94 Work opportunity tax credit ................... 240 210 240 160 50 30 10 490 40 40 40 30 10 ................ ................ 80 95 Welfare-to-work tax credit ..................... 50 50 70 50 20 10 ................ 150 10 10 10 10 ................ ................ ................ 20 96 Employer provided child care exclusion ............ ............ ................ ................ ................ ................ ................ ................ 600 620 810 930 970 1010 1060 4,780 97 Employer-provided child care credit ..... ............ 8 10 10 10 10 10 50 ................ ................ ................ ................ ................ ................ ................ ................ 98 Assistance for adopted foster children ............ ............ ................ ................ ................ ................ ................ ................ 290 310 350 380 420 460 500 2,110 99 Adoption credit and exclusion .............. ............ ............ ................ ................ ................ ................ ................ ................ 450 500 540 560 570 580 600 2,850 100 Exclusion of employee meals and lodging (other than military) ............. ............ ............ ................ ................ ................ ................ ................ ................ 810 850 890 930 970 1,010 1,060 4,860 101 Child credit 2 .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 22,400 32,710 32,810 32,900 32,860 32,790 32,670 164,030 102 Credit for child and dependent care expenses ........................................... ............ ............ ................ ................ ................ ................ ................ ................ 2,990 3,140 2,810 1,900 1,800 1,710 1,630 9,850 103 Credit for disabled access expenditures .................................................. 10 10 10 10 10 20 20 70 20 30 30 30 30 30 30 150 104 Deductibility of charitable contributions, other than education and health ...... 1,170 1,230 1,290 1,360 1,430 1,500 1,570 7,150 26,200 28,440 31,260 33,140 35,360 37,910 40,640 178,310 105 Exclusion of certain foster care payments ................................................. ............ ............ ................ ................ ................ ................ ................ ................ 440 440 440 450 450 460 470 2,270 106 Exclusion of parsonage allowances ..... ............ ............ ................ ................ ................ ................ ................ ................ 430 460 480 510 540 580 610 2,720 Health 107 Exclusion of employer contributions for medical insurance premiums and medical care ................................................. ............ ............ ................ ................ ................ ................ ................ ................ 102,250 112,160 125,690 139,060 152,560 166,190 176,740 760,240 108 Self-employed medical insurance premiums .................................................... ............ ............ ................ ................ ................ ................ ................ ................ 3,330 3,780 4,330 4,800 5,260 5,760 6,250 26,400 109 Medical Savings Accounts/Health Savings Accounts ................................................ ............ ............ ................ ................ ................ ................ ................ ................ 620 1,050 1,830 2,650 3,510 3,960 3,910 15,860 110 Deductibility of medical expenses ............. ............ ............ ................ ................ ................ ................ ................ ................ 7,380 8,590 9,140 9,970 11,100 11,890 12,670 54,770 111 Exclusion of interest on hospital construction bonds .............................................. 400 410 430 440 450 460 480 2,260 1,470 1,610 1,730 1,820 1,950 2,010 2,070 9,580 112 Deductibility of charitable contributions (health) ................................................... 150 160 160 170 180 190 200 900 2,940 3,190 3,510 3,720 3,970 4,260 4,570 20,030 113 Tax credit for orphan drug research ........ 180 210 230 260 290 330 360 1,470 ................ ................ ................ ................ ................ ................ ................ ................ 114 Special Blue Cross/Blue Shield deduction 400 390 360 390 340 370 430 1,890 ................ ................ ................ ................ ................ ................ ................ ................ 115 Tax credit for health insurance purchased by certain displaced and retired individuals 3 ...................................................... ............ ............ ................ ................ ................ ................ ................ ................ 50 60 40 40 40 50 50 220 Income security 116 Exclusion of railroad retirement system benefits .................................................. ............ ............ ................ ................ ................ ................ ................ ................ 400 400 400 400 400 400 400 2,000 117 Exclusion of workers’ compensation benefits ........................................................ ............ ............ ................ ................ ................ ................ ................ ................ 5,490 5,730 5,940 6,100 6,300 6,520 6,730 31,590 118 Exclusion of public assistance benefits (normal tax method) .............................. ............ ............ ................ ................ ................ ................ ................ ................ 410 430 450 470 490 510 480 2,400 119 Exclusion of special benefits for disabled coal miners ............................................ ............ ............ ................ ................ ................ ................ ................ ................ 60 50 50 50 40 40 40 220 120 Exclusion of military disability pensions ... ............ ............ ................ ................ ................ ................ ................ ................ 100 100 110 110 110 120 120 570 Net exclusion of pension contributions and earnings: 121 Employer plans ..................................... ............ ............ ................ ................ ................ ................ ................ ................ 46,970 50,330 51,050 52,570 47,530 45,310 44,570 241,030 122 401(k) plans .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 47,730 45,870 48,140 51,800 56,140 60,930 66,400 283,410 123 Individual Retirement Accounts ............ ............ ............ ................ ................ ................ ................ ................ ................ 7,450 7,340 7,310 6,990 6,680 6,220 5,650 32,850 124 Low and moderate income savers credit .................................................. ............ ............ ................ ................ ................ ................ ................ ................ 970 1,100 1,170 700 ................ ................ ................ 1,870 125 Keogh plans .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 8,830 9,380 9,980 10,650 11,610 12,650 13,780 58,670 Exclusion of other employee benefits: 126 Premiums on group term life insurance ............ ............ ................ ................ ................ ................ ................ ................ 2,070 2,090 2,110 2,110 2,150 2,180 2,200 10,750 127 Premiums on accident and disability insurance .............................................. ............ ............ ................ ................ ................ ................ ................ ................ 260 280 290 300 310 320 330 1,550 128 Small business retirement plan credit ...... 40 50 60 70 80 80 70 360 40 50 60 70 70 70 70 340 129 Income of trusts to finance supplementary unemployment benefits ......................... ............ ............ ................ ................ ................ ................ ................ ................ 20 20 20 20 20 20 20 100 130 Special ESOP rules ................................... 1600 1720 1870 2030 2190 2390 2610 11,090 320 340 350 370 390 390 390 1,890 131 Additional deduction for the blind ............. ............ ............ ................ ................ ................ ................ ................ ................ 30 40 40 40 40 40 40 200 132 Additional deduction for the elderly .......... ............ ............ ................ ................ ................ ................ ................ ................ 1,700 1,810 1,960 1,940 1,900 1,930 1,950 9,680 133 Tax credit for the elderly and disabled .... ............ ............ ................ ................ ................ ................ ................ ................ 20 20 20 20 10 10 10 70 134 Deductibility of casualty losses ................. ............ ............ ................ ................ ................ ................ ................ ................ 550 250 270 280 290 300 320 1,460 135 Earned income tax credit 4 ........................ ............ ............ ................ ................ ................ ................ ................ ................ 4,893 4,983 5,423 5,168 5,287 5,480 5,597 26,955 323 19. TAX EXPENDITURES Table 19–2. ESTIMATES OF TAX EXPENDITURES FOR THE CORPORATE AND INDIVIDUAL INCOME TAXES—Continued (in millions of dollars) Corporations Individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 2004 2005 2006 2007 2008 2009 2010 2006–10 Social Security Exclusion of social security benefits 136 Social Security benefits for retired workers .............................................. ............ ............ ................ ................ ................ ................ ................ ................ 19,200 19,480 19,770 20,470 20,900 21,260 23,720 106,120 137 Social Security benefits for disabled .... ............ ............ ................ ................ ................ ................ ................ ................ 3,580 3,740 3,870 4,110 4,290 4,500 4,910 21,680 138 Social Security benefits for dependents and survivors .................................... ............ ............ ................ ................ ................ ................ ................ ................ 4,140 4,120 3,990 4,030 3,880 3,920 4,060 19,880 Veterans benefits and services 139 Exclusion of veterans death benefits and disability compensation ......................... ............ ............ ................ ................ ................ ................ ................ ................ 3,300 3,560 3,750 4,030 4,190 4,360 4,520 20,850 140 Exclusion of veterans pensions ................ ............ ............ ................ ................ ................ ................ ................ ................ 110 120 120 120 120 130 140 630 141 Exclusion of GI bill benefits ...................... ............ ............ ................ ................ ................ ................ ................ ................ 130 150 160 170 180 190 200 900 142 Exclusion of interest on veterans housing bonds ..................................................... 10 10 10 10 10 10 10 50 40 40 40 50 50 50 50 240 General purpose fiscal assistance 143 Exclusion of interest on public purpose State and local bonds ........................... 6,210 6,390 6,580 6,780 6,990 7,190 7,410 34,950 19,940 20,140 20,030 19,570 20,150 20,760 21,380 101,890 144 Deductibility of nonbusiness state and local taxes other than on owner-occupied homes ............................................ ............ ............ ................ ................ ................ ................ ................ ................ 45,290 39,090 34,620 32,890 31,850 31,760 32,120 163,240 145 Tax credit for corporations receiving income from doing business in U.S. possessions ................................................. 1,000 900 500 50 ................ ................ ................ 550 ................ ................ ................ ................ ................ ................ ................ ................ Interest 146 Deferral of interest on U.S. savings bonds ..................................................... ............ ............ ................ ................ ................ ................ ................ ................ 50 50 50 50 60 70 70 300 Addendum: Aid to State and local governments Deductibility of: Property taxes on owner-occupied homes ................................................ ............ ............ ................ ................ ................ ................ ................ ................ 19,930 16,590 14,830 14,110 13,400 13,000 12,800 68,140 Nonbusiness State and local taxes other than on owner-occupied homes ................................................ ............ ............ ................ ................ ................ ................ ................ ................ 45,290 39,090 34,620 32,890 31,850 31,760 32,120 163,240 Exclusion of interest on State and local bonds for: Public purposes ..................................... 6,210 6,390 6,580 6,780 6,990 7,190 7,410 34,950 19,940 20,140 20,030 19,570 20,150 20,760 21,380 101,890 Energy facilities ..................................... 20 20 20 20 20 20 20 100 80 80 90 90 100 100 110 490 Water, sewage, and hazardous waste disposal facilities ............................... 110 110 110 120 120 120 130 600 390 420 460 480 510 530 550 2,530 Small-issues .......................................... 100 100 100 100 110 110 110 530 350 390 410 440 470 480 500 2,300 Owner-occupied mortgage subsidies ... 220 230 230 240 250 250 260 1,230 800 880 950 990 1,070 1,100 1,130 5,240 Rental housing ...................................... 80 80 80 80 90 90 90 430 280 310 330 340 370 380 390 1,810 Airports, docks, and similar facilities .... 180 190 190 200 210 210 220 1,030 670 740 790 830 890 920 950 4,380 Student loans ........................................ 60 60 70 70 70 70 70 350 230 250 270 280 300 310 320 1,480 Private nonprofit educational facilities .. 210 210 220 230 230 240 250 1,170 760 840 900 950 1,020 1,050 1,080 5,000 Hospital construction ............................. 400 410 430 440 450 460 480 2,260 1,470 1,610 1,730 1,820 1,950 2,010 2,070 9,580 Veterans’ housing ................................. 10 10 10 10 10 10 10 50 40 40 40 50 50 50 50 240 Credit for holders of zone academy bonds ..................................................... 90 110 130 130 140 140 140 680 ................ ................ ................ ................ ................ ................ ................ ................ 1 In addition, the partial exemption from the excise tax and excise credits for alcohol fuels result in a reduction in excise tax receipts (in millions of dollars) as follows: 2004 $1,450; 2005 $1,490; 2006 $1,550; 2007 $1,590; 2008 $1,620; 2009 $1,650; and 2010 $1,680. 2 The figures in the table indicate the effect of the child tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2004 $8,857; 2005 $13,516; 2006 $13,180; 2007 $12,549; 2008 $12,040; 2009 $11,693 and 2010 $11,364 3 In addition to the receipts shown, there are outlays of $70 million in 2004, $90 million in 2005, $100 million in 2006, $120 million in 2007, $130 million in 2008, and $140 million in 2009 and $150 million in 2010 projected. 4 The figures in the table indicate the effect of the earned income tax credit on receipts. The effect of the credit on outlays (in millions of dollars) is as follows: 2004 $33,134;2005 $33,790; 2006 $34,132; 2007 $34,481; 2008 $34,723; 2009 $35,517; and 2010 $36,099. Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method. All estimates have been rounded to the nearest $10 million. Provisions with estimates that rounded to zero in each year are not included in the table. 324 ANALYTICAL PERSPECTIVES Table 19–3. INCOME TAX EXPENDITURES RANKED BY TOTAL 2006–2010 PROJECTED REVENUE EFFECTS (in millions of dollars) Provision 2006 2006–10 Exclusion of employer contributions for medical insurance premiums and medical care ................................................. 125,690 760,240 Deductibility of mortgage interest on owner-occupied homes ............................................................................................ 76,030 445,540 Net exclusion of pension contributions and earnings: 401(k) plans .................................................................................. 48,140 283,410 Capital gains exclusion on home sales ............................................................................................................................... 36,270 247,180 Net exclusion of pension contributions and earnings: Employer plans ............................................................................. 51,050 241,030 Deductibility of charitable contributions, other than education and health ......................................................................... 32,550 185,460 Exclusion of net imputed rental income on owner-occupied homes .................................................................................. 29,720 185,206 Step-up basis of capital gains at death .............................................................................................................................. 28,760 164,420 Child credit ........................................................................................................................................................................... 32,810 164,030 Deductibility of nonbusiness State and local taxes other than on owner-occupied homes .............................................. 34,620 163,240 Capital gains (except agriculture, timber, iron ore, and coal) ............................................................................................ 28,370 144,190 Exclusion of interest on life insurance savings ................................................................................................................... 24,070 143,610 Exclusion of interest on public purpose State and local bonds ......................................................................................... 26,610 136,840 Social Security benefits for retired workers ......................................................................................................................... 19,770 106,120 Deductibility of State and local property tax on owner-occupied homes ........................................................................... 14,830 68,140 Net exclusion of pension contributions and earnings: Keough plans ................................................................................ 9,980 58,670 Deductibility of medical expenses ....................................................................................................................................... 9,140 54,770 Deduction for U.S. production activities .............................................................................................................................. 5,420 52,930 Deferral of income from controlled foreign corporations (normal tax method) .................................................................. 7,440 42,740 Net exclusion of pension contributions and earnings: Individual Retirement Accounts .................................................... 7,310 32,850 Exclusion of workers’ compensation benefits ...................................................................................................................... 5,940 31,590 Expensing of research and experimentation expenditures (normal tax method) .............................................................. 7,920 31,330 Earned income tax credit .................................................................................................................................................... 5,423 26,955 Self-employed medical insurance premiums ....................................................................................................................... 4,330 26,400 Exception from passive loss rules for $25,000 of rental loss ............................................................................................ 4,750 22,060 Credit for low-income housing investments ......................................................................................................................... 4,010 22,050 Social Security benefits for disabled .................................................................................................................................. 3,870 21,680 Deductibility of charitable contributions (education) ............................................................................................................ 3,680 21,390 Deductibility of charitable contributions (health) .................................................................................................................. 3,670 20,930 Exclusion of veterans death benefits and disability compensation .................................................................................... 3,750 20,850 Social Security benefits for dependents and survivors ....................................................................................................... 3,990 19,880 Graduated corporation income tax rate (normal tax method) ............................................................................................ 3,730 19,630 HOPE tax credit .................................................................................................................................................................. 3,220 16,890 Medical Savings Accounts / Health Savings Accounts ...................................................................................................... 1,830 15,860 Exclusion of income earned abroad by U.S. citizens ......................................................................................................... 2,810 15,570 Exclusion of reimbursed employee parking expenses ........................................................................................................ 2,730 15,150 Special ESOP rules ............................................................................................................................................................. 2,220 12,980 Exclusion of benefits and allowances to armed forces personnel ..................................................................................... 2,520 12,830 Exclusion of interest on hospital construction bonds .......................................................................................................... 2,160 11,840 Lifetime Learning tax credit ................................................................................................................................................. 2,080 11,560 Inventory property sales source rules exception ................................................................................................................. 1,770 10,980 Premiums on group term life insurance .............................................................................................................................. 2,110 10,750 Credit for child and dependent care expenses ................................................................................................................... 2,810 9,850 Additional deduction for the elderly .................................................................................................................................... 1,960 9,680 Parental personal exemption for students age 19 or over ................................................................................................. 2,110 8,370 Exclusion of scholarship and fellowship income (normal tax method) .............................................................................. 1,460 8,020 Exemption of credit union income ...................................................................................................................................... 1,390 7,550 Excess of percentage over cost depletion, fuels ................................................................................................................ 1,350 7,300 Empowerment zones, Enterprise communities, and Renewal communities ...................................................................... 1,210 6,900 Exclusion of interest on owner-occupied mortgage subsidy bonds ................................................................................... 1,180 6,470 Extraterritorial income exclusion ......................................................................................................................................... 4,270 6,370 Exclusion of interest on bonds for private nonprofit educational facilities ......................................................................... 1,120 6,170 Deferral of income from post 1987 installment sales ......................................................................................................... 1,140 6,010 Exclusion of interest for airport, dock, and similar bonds .................................................................................................. 980 5,410 Exclusion of certain allowances for Federal employees abroad ........................................................................................ 950 5,260 Exclusion of employee meals and lodging (other than military) ........................................................................................ 890 4,860 Employer provided child care exclusion .............................................................................................................................. 810 4,780 State prepaid tuition plans .................................................................................................................................................. 650 4,150 Deductibility of student-loan interest ................................................................................................................................... 800 4,100 Capital gains treatment of certain income ........................................................................................................................... 760 3,870 New markets tax credit ....................................................................................................................................................... 610 3,770 Credit for increasing research activities .............................................................................................................................. 2,140 3,670 New technology credit ......................................................................................................................................................... 620 3,630 Exclusion for employer-provided transit passes .................................................................................................................. 550 3,560 Exclusion of employer-provided educational assistance ..................................................................................................... 590 3,270 Deferred taxes for financial firms on certain income earned overseas ............................................................................. 2,260 3,220 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities .......................................................... 570 3,130 Adoption credit and exclusion ............................................................................................................................................. 540 2,850 Exclusion of interest on small issue bonds ......................................................................................................................... 510 2,830 325 19. TAX EXPENDITURES Table 19–3. INCOME TAX EXPENDITURES RANKED BY TOTAL 2006–2010 PROJECTED REVENUE EFFECTS— Continued (in millions of dollars) Provision 2006 2006–10 Exclusion of parsonage allowances .................................................................................................................................... 480 2,720 Alternative fuel production credit ........................................................................................................................................ 1,040 2,500 Exclusion of public assistance benefits (normal tax method) ............................................................................................ 450 2,400 Exclusion of certain foster care payments .......................................................................................................................... 440 2,270 Exclusion of interest on rental housing bonds .................................................................................................................... 410 2,240 Carryover basis of capital gains on gifts ............................................................................................................................. 290 2,170 Assistance for adopted foster children ............................................................................................................................... 350 2,110 Exclusion of railroad retirement system benefits ................................................................................................................ 400 2,000 Expensing of multiperiod timber growing costs ................................................................................................................... 370 1,990 Special Blue Cross/Blue Shield deduction .......................................................................................................................... 360 1,890 Low and moderate income savers credit ............................................................................................................................ 1,170 1,870 Deduction for higher education expenses ........................................................................................................................... 1,840 1,840 Exclusion of interest on student-loan bonds ....................................................................................................................... 340 1,830 Tax incentives for preservation of historic structures ......................................................................................................... 330 1,810 Enhanced oil recovery credit .............................................................................................................................................. 340 1,810 Capital gains exclusion of small corporation stock ............................................................................................................. 250 1,720 Premiums on accident and disability insurance .................................................................................................................. 290 1,550 Education Individual Retirement Accounts .......................................................................................................................... 190 1,540 Expensing of certain small investments (normal tax method) ............................................................................................ 1,650 1,500 Tax credit for orphan drug research ................................................................................................................................... 230 1,470 Deductibility of casualty losses ........................................................................................................................................... 270 1,460 Expensing of exploration and development costs, nonfuel minerals ................................................................................. 250 1,290 Expensing of exploration and development costs, fuels .................................................................................................... 370 1,220 Tax exemption of certain insurance companies owned by tax-exempt organizations ...................................................... 210 1,170 Exclusion of GI bill benefits ................................................................................................................................................ 160 900 Small business retirement plan credit ................................................................................................................................ 120 700 Credit for holders of zone academy bonds ......................................................................................................................... 130 680 Expensing of certain capital outlays ................................................................................................................................... 130 670 Exclusion of veterans pensions .......................................................................................................................................... 120 630 Exclusion of interest on energy facility bonds .................................................................................................................... 110 590 Work opportunity tax credit ................................................................................................................................................. 280 570 Exclusion of military disability pensions .............................................................................................................................. 110 570 Tax credit for corporations receiving income from doing business in U.S. possessions .................................................. 500 550 Tax credit for certain expenditures for maintaining railroad tracks .................................................................................... 140 480 Exclusion of conservation subsidies provided by public utilities ........................................................................................ 100 470 Small life insurance company deduction ............................................................................................................................. 80 400 Capital gains treatment of royalties on coal ....................................................................................................................... 80 390 Capital gains treatment of certain timber income ............................................................................................................... 80 390 Expensing of certain multiperiod production costs .............................................................................................................. 70 380 Exemption of certain mutuals’ and cooperatives’ income .................................................................................................. 60 340 Deferral of interest on U.S. savings bonds ......................................................................................................................... 50 300 Exclusion of interest on veterans housing bonds ............................................................................................................... 50 290 Ordinary income treatment of loss from small business corporation stock sale ............................................................... 50 250 Exceptions from imputed interest rules ............................................................................................................................... 50 250 Tax credit for health insurance purchased by certain displaced and retired individuals .................................................. 40 220 Exclusion of special benefits for disabled coal miners ....................................................................................................... 50 220 Credit for disabled access expenditures ............................................................................................................................. 40 220 Investment credit for rehabilitation of structures (other than historic) ................................................................................ 40 200 Income averaging for farmers ............................................................................................................................................. 40 200 Additional deduction for the blind ....................................................................................................................................... 40 200 Cancellation of indebtedness .............................................................................................................................................. 30 190 Alcohol fuel credits .............................................................................................................................................................. 30 180 Welfare-to-work tax credit ................................................................................................................................................... 80 170 Special deduction for teacher expenses ............................................................................................................................. 150 150 Special rules for certain film and TV production ................................................................................................................ 110 140 Income of trusts to finance supplementary unemployment benefits .................................................................................. 20 100 Exclusion of interest on savings bonds redeemed to finance educational expenses ....................................................... 20 100 Exception from passive loss limitation for working interests in oil and gas properties ..................................................... 20 100 Discharge of student loan indebtedness ............................................................................................................................. 20 100 Deferral of tax on shipping companies ............................................................................................................................... 20 100 Expensing of capital costs with respect to complying with EPA sulfur regulations .......................................................... ............................ 90 Deferral of gain on sale of farm refiners ............................................................................................................................. 10 90 Tax credit for the elderly and disabled ............................................................................................................................... 20 70 Treatment of loans forgiven for solvent farmers ................................................................................................................. 10 50 Special alternative tax on small property and casualty insurance companies .................................................................. 10 50 Employer-provided child care credit ................................................................................................................................... 10 50 Bio-Diesel tax credit ............................................................................................................................................................ 30 40 326 ANALYTICAL PERSPECTIVES Table 19–3. INCOME TAX EXPENDITURES RANKED BY TOTAL 2006–2010 PROJECTED REVENUE EFFECTS— Continued (in millions of dollars) Provision 2006 2006–10 Excess of percentage over cost depletion, nonfuel minerals ............................................................................................. ............................ 10 Expensing of environmental remediation costs ................................................................................................................... 20 –30 Excess bad debt reserves of financial institutions .............................................................................................................. –10 –30 Exclusion of gain or loss on sale or exchange of certain brownfield sites ....................................................................... ............................ –120 Tax credit and deduction for clean-fuel burning vehicles ................................................................................................... 50 –180 Amortization of start-up costs (normal tax method) ............................................................................................................ ............................ –440 Deferral of capital gains with respect of dispositions of transmission property ................................................................ –620 –920 Accelerated depreciation of buildings other than rental housing (normal tax method) ..................................................... –4,786 –58,061 Accelerated depreciation of machinery and equipment (normal tax method) ................................................................... –37,830 –148,650 Table 19–4. PRESENT VALUE OF SELECTED TAX EXPENDITURES FOR ACTIVITY IN CALENDAR YEAR 2004 (in millions of dollars) Provision 2004 Present Value of Revenue Loss 1 Deferral of income from controlled foreign corporations (normal tax method) ................................................... 6,360 2 Deferred taxes for financial firms on income earned overseas .......................................................................... 2,160 3 Expensing of research and experimentation expenditures (normal tax method) ............................................... 2,220 4 Expensing of exploration and development costs—fuels .................................................................................... 160 5 Expensing of exploration and development costs—nonfuels .............................................................................. ........................ 6 Expensing of multiperiod timber growing costs ................................................................................................... 200 7 Expensing of certain multiperiod production costs—agriculture .......................................................................... 140 8 Expensing of certain capital outlays—agriculture ................................................................................................ 180 9 Deferral of income on life insurance and annuity contracts ................................................................................ 25,020 10 Accelerated depreciation on rental housing ......................................................................................................... 5,210 11 Accelerated depreciation of buildings other than rental ...................................................................................... 543 12 Accelerated depreciation of machinery and equipment ....................................................................................... 39,380 13 Expensing of certain small investments (normal tax method) ............................................................................ 670 14 Amortization of start-up costs (normal tax method) ............................................................................................. 50 15 Deferral of tax on shipping companies ................................................................................................................ 20 16 Credit for holders of zone academy bonds ......................................................................................................... 200 17 Credit for low-income housing investments ......................................................................................................... 3,870 18 Deferral for State prepaid tuition plans ................................................................................................................ 1,310 19 Exclusion of pension contributions—employer plans ........................................................................................... 85,040 20 Exclusion of 401(k) contributions .......................................................................................................................... 82,400 21 Exclusion of IRA contributions and earnings ....................................................................................................... 3,460 22 Exclusion of contributions and earnings for Keogh plans ................................................................................... 3,000 23 Exclusion of interest on public-purpose bonds .................................................................................................... 14,650 24 Exclusion of interest on non-public purpose bonds ............................................................................................. 5,680 25 Deferral of interest on U.S. savings bonds .......................................................................................................... 230 26 Expensing of capital costs with respect to complying with EPA sulfur regulations ........................................... ........................ 327 19. TAX EXPENDITURES Table 19–5. OUTLAY EQUIVALENT ESTIMATES OF INCOME TAX EXPENDITURES (in millions of dollars) Corporations Individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 2004 2005 2006 2007 2008 2009 2010 2006–10 National Defense 1 Exclusion of benefits and allowances to armed forces personnel ........................ ............ ............ ................ ................ ................ ................ ................ ................ 2,860 2,880 2,920 2,950 2,980 3,010 3,040 14,900 International affairs 2 Exclusion of income earned abroad by U.S. citizens .......................................... ............ ............ ................ ................ ................ ................ ................ ................ 3,530 3,640 3,700 3,880 4,100 4,320 4,560 20,560 3 Exclusion of certain allowances for Federal employees abroad ......................... ............ ............ ................ ................ ................ ................ ................ ................ 1,100 1,150 1,210 1,280 1,350 1,410 1,490 6,740 4 Extraterritorial income exclusion ............... 8,470 7,950 6,570 2,800 330 50 30 9,780 ................ ................ ................ ................ ................ ................ ................ ................ 5 Inventory property sales solurce rules exception ................................................... 2,310 2,490 2,720 3,000 3,390 3,740 4,050 16,900 ................ ................ ................ ................ ................ ................ ................ ................ 6 Deferral of income from controlled foreign corporations (normal tax method) ........ 7,240 7,000 7,440 7,960 8,510 9,100 9,730 42,740 ................ ................ ................ ................ ................ ................ ................ ................ 7 Deferred taxes for financial firms on certain income earned overseas ............... 2,130 2,190 2,260 960 ................ ................ ................ 3,220 ................ ................ ................ ................ ................ ................ ................ ................ General science, space, and technology 8 Expensing of research and experimentation expenditures (normal tax method) .......................................................... –2,280 4,010 7,770 6,850 6,140 5,250 4,700 30,710 –50 100 150 140 120 110 100 620 9 Credit for increasing research activities ... 7,120 7,820 3,230 1,400 590 270 70 5,560 80 80 60 ................ ................ ................ ................ 60 Energy 10 Expensing of exploration and development costs, fuels ................................... 230 350 330 250 210 180 140 1,110 40 70 60 50 40 30 30 210 11 Excess of percentage over cost depletion, fuels ....................................................... 1,570 1,570 1,690 1,760 1,820 1,880 1,910 9,060 140 140 150 150 170 170 180 820 12 Alternative fuel production credit .............. 1,330 1,330 1,330 1,330 530 ................ ................ 3,190 70 70 70 70 30 ................ ................ 170 13 Exception from passive loss limitation for working interests in oil and gas properties ...................................................... ............ ............ ................ ................ ................ ................ ................ ................ 20 20 20 20 20 20 20 100 14 Capital gains treatment of royalties on coal ........................................................ ............ ............ ................ ................ ................ ................ ................ ................ 100 100 110 110 140 100 90 550 15 Exclusion of interest on energy facility bonds ..................................................... 30 30 30 30 30 30 30 150 120 120 130 130 140 140 160 700 16 Enhanced oil recovery credit .................... 400 410 420 430 440 450 460 2,200 10 10 10 10 10 10 10 50 17 New technology credit ............................... 470 680 880 1,000 1,130 1,160 970 5,140 ................ ................ ................ ................ ................ ................ ................ ................ 18 Alcohol fuel credits 1 .................................. 20 20 20 20 30 30 30 130 10 10 10 10 10 10 10 50 19 Tax credit and deduction for clean-fuel burning vehicles .................................... 30 40 50 30 –10 –30 –10 30 70 50 10 –50 –80 –80 –70 –270 20 Exclusion of utility conservation subsidies ............ ............ ................ ................ ................ ................ ................ ................ 130 130 130 130 130 120 120 630 Natural resources and environment 21 Expensing of exploration and development costs, nonfuel minerals ................ 10 10 10 10 10 10 10 50 ................ ................ ................ ................ ................ ................ ................ ................ 22 Excess of percentage over cost depletion, nonfuel minerals .................................... 280 280 300 300 320 320 340 1,580 20 20 30 30 30 30 30 150 23 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities 150 150 150 170 170 170 180 840 560 610 670 700 740 770 800 3,680 24 Capital gains treatment of certain timber income ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 100 100 110 110 140 100 90 550 25 Expensing of multiperiod timber growing costs ...................................................... 310 320 330 350 370 380 400 1,830 140 140 140 150 150 150 150 740 26 Tax incentives for preservation of historic structures ............................................... 230 240 250 260 270 290 300 1,370 70 80 80 80 90 90 100 440 27 Expensing of capital costs with respect to complying with EPA sulfur regulations ............ 20 ................ 10 30 70 10 120 ................ ................ ................ ................ ................ ................ ................ ................ 28 Exclusion of gain or loss on sale or exchange of certain brownfield sites ....... ............ ............ ................ –10 –20 –30 –50 –110 ................ ................ ................ ................ –10 –10 –20 –40 Agriculture 29 Expensing of certain capital outlays ......... 20 30 30 30 30 30 30 150 100 110 130 130 130 140 140 670 30 Expensing of certain multiperiod production costs ............................................... 10 10 20 20 20 20 20 100 50 60 70 70 80 80 80 380 31 Treatment of loans forgiven for solvent farmers ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 10 10 10 10 10 10 10 50 32 Capital gains treatment of certain income ............ ............ ................ ................ ................ ................ ................ ................ 960 1,040 1,090 1,170 1,410 1,030 830 5,530 33 Income averaging for farmers ................... ............ ............ ................ ................ ................ ................ ................ ................ 40 40 40 40 50 50 50 230 34 Deferral of gain on sale of farm refiners 20 20 20 20 20 20 20 100 ................ ................ ................ ................ ................ ................ ................ ................ 35 Bio-Diesel tax credit .................................. ............ ............ ................ ................ ................ ................ ................ ................ ................ 40 40 10 ................ ................ ................ 50 Commerce and housing Financial institutions and insurance: 36 Exemption of credit union income ........ 1,620 1,690 1,760 1,840 1,920 2,000 2,080 9,600 ................ ................ ................ ................ ................ ................ ................ ................ 37 Bad debt reserves of financial institutions ................................................... –30 –30 –10 –10 –10 ................ ................ –30 ................ ................ ................ ................ ................ ................ ................ ................ 38 Exclusion of interest on life insurance savings .............................................. 2,280 2,450 2,520 2,840 3,180 3,380 3,660 15,580 21,380 23,090 24,260 26,130 28,560 30,690 33,310 142,950 39 Special alternative tax on small property and casualty insurance companies .................................................... 10 10 10 10 10 10 10 50 ................ ................ ................ ................ ................ ................ ................ ................ 40 Tax exemption of certain insurance companies owned by tax-exempt organizations ........................................ 270 290 320 330 350 380 400 1,780 ................ ................ ................ ................ ................ ................ ................ ................ 41 Small life insurance company deduction ..................................................... 120 120 120 120 120 120 120 600 ................ ................ ................ ................ ................ ................ ................ ................ Housing: 42 Exclusion of interest on owner-occupied mortgage subsidy bonds .......... 310 320 320 330 350 350 360 1,710 1,160 1,270 1,380 1,430 1,550 1,590 1,640 7,590 328 ANALYTICAL PERSPECTIVES Table 19–5. OUTLAY EQUIVALENT ESTIMATES OF INCOME TAX EXPENDITURES—Continued (in millions of dollars) Corporations Individuals 2004 2005 2006 2007 2008 2009 2010 2006–10 2004 2005 2006 2007 2008 2009 2010 2006–10 43 Exclusion of interest on rental housing bonds ................................................. 110 110 110 110 120 120 120 580 410 450 480 490 540 550 560 2,620 44 Deductibility of mortgage interest on owner-occupied homes ..................... ............ ............ ................ ................ ................ ................ ................ ................ 61,450 68,870 76,030 81,990 88,990 95,770 102,760 445,540 45 Deductibility of State and local property tax on owner-occupied homes ......... ............ ............ ................ ................ ................ ................ ................ ................ 19,930 16,590 14,830 14,110 13,400 13,000 12,800 68,140 46 Deferral of income from post 1987 installment sales .................................. 290 290 300 300 310 310 320 1,540 810 830 840 860 880 890 890 4,360 47 Capital gains exclusion on home sales ............ ............ ................ ................ ................ ................ ................ ................ 34,980 38,630 42,670 47,120 52,050 68,320 89,950 300,110 48 Exclusion of net imputed rental income ............ ............ ................ ................ ................ ................ ................ ................ 32,790 38,130 39,630 44,280 49,150 54,170 59,710 246,940 49 Exception from passive loss rules for $25,000 of rental loss ....................... ............ ............ ................ ................ ................ ................ ................ ................ 5,030 4,900 4,750 4,580 4,410 4,240 4,240 22,220 50 Credit for low-income housing investments ................................................. 3,910 4,110 4,290 4,470 4,680 4,920 5,170 23,530 1,050 1,100 1,150 1,200 1,250 1,320 1,380 6,300 51 Accelerated depreciation on rental housing (normal tax method) ........... –8 –46 –98 –143 –197 –275 –389 –1,102 758 –110 –895 –1,703 –2,500 –3,686 –5,512 –14,296 Commerce: 52 Cancellation of indebtedness ................ ............ ............ ................ ................ ................ ................ ................ ................ 30 30 30 40 40 40 40 190 53 Exceptions from imputed interest rules ............ ............ ................ ................ ................ ................ ................ ................ 50 50 50 50 50 50 50 250 54 Capital gains (except agriculture, timber, iron ore, and coal) .................... ............ ............ ................ ................ ................ ................ ................ ................ 35,930 38,860 40,530 43,500 52,620 38,430 30,900 205,980 55 Capital gains exclusion of small corporation stock ................................... ............ ............ ................ ................ ................ ................ ................ ................ 220 270 340 400 460 530 610 2,340 56 Step-up basis of capital gains at death ............ ............ ................ ................ ................ ................ ................ ................ 32,260 34,860 38,340 42,180 46,390 47,410 44,910 219,230 57 Carryover basis of capital gains on gifts .................................................... ............ ............ ................ ................ ................ ................ ................ ................ 250 280 340 350 370 530 1,060 2,650 58 Ordinary income treatment of loss from small business corporation stock sale .................................................... ............ ............ ................ ................ ................ ................ ................ ................ 60 60 60 60 60 60 60 300 59 Accelerated depreciation of buildings other than rental housing (normal tax method) ....................................... –2,980 –3,850 –4,340 –6,170 –9,220 –12,620 –17,320 –49,670 –280 –330 –450 –760 –1,140 –2,110 –3,930 –8,390 60 Accelerated depreciation of machinery and equipment (normal tax method) 37,080 –8,780 –32,880 –26,480 –23,310 –21,260 –20,290 –124,230 7,610 –2,220 –4,950 –4,440 –4,640 –4,930 –5,470 –24,430 61 Expensing of certain small investments (normal tax method) ......................... 680 1,780 680 –390 –140 –30 –10 120 840 3,040 970 –100 110 170 240 1,400 62 Amortization of start-up costs (normal tax method) ....................................... 70 40 ................ –40 –80 –120 –150 –390 10 10 ................ ................ –10 –20 –20 –50 63 Graduated corporation income tax rate (normal tax method) ......................... 3,760 4,910 5,730 5,880 6,030 6,180 6,360 30,180 ................ ................ ................ ................ ................ ................ ................ ................ 64 Exclusion of interest on small issue bonds ................................................. 140 140 140 140 150 150 150 730 510 560 590 640 680 700 720 3,330 65 Deduction for U.S. production activities ............ 3,420 5,780 9,480 12,170 12,620 17,150 57,200 ................ 950 1,460 2,180 2,800 2,940 4,000 13,380 66 Special rules for certain film and TV production .......................................... ............ 70 90 70 60 –30 –70 120 ................ 20 20 20 10 –10 –20 20 Transportation 67 Deferral of tax on shipping companies .... 20 20 20 20 20 20 20 100 ................ ................ ................ ................ ................ ................ ................ ................ 68 Exclusion of reimbursed employee parking expenses ......................................... ............ ............ ................ ................ ................ ................ ................ ................ 3,190 3,350 3,530 3,710 3,900 4,100 4,300 19,540 69 Exclusion for employer-provided transit passes ................................................... ............ ............ ................ ................ ................ ................ ................ ................ 510 600 690 790 890 980 1,100 4,450 70 Tax credit for certain expenditures for maintaining railroad tracks .................... ............ 100 190 200 140 70 30 630 ................ ................ ................ ................ ................ ................ ................ ................ Community and regional development 71 Investment credit for rehabilitation of structures (other than historic) .............. 20 20 20 20 20 20 20 100 20 20 20 20 20 20 20 100 72 Exclusion of interest for airport, dock, and similar bonds ......................................... 250 260 260 280 290 290 310 1,430 970 1,070 1,140 1,200 1,290 1,330 1,380 6,340 73 Exemption of certain mutuals’ and cooperatives’ income ................................ 70 70 70 80 80 80 80 390 ................ ................ ................ ................ ................ ................ ................ ................ 74 Empowerment zones, Enterprise communities and Renewal communities .......... 280 290 310 340 370 420 190 1,630 800 830 900 1,000 1,110 1,320 940 5,270 75 New markets tax credit ............................. 70 110 150 210 220 200 170 950 220 320 460 620 650 590 500 2,820 76 Expensing of environmental remediation costs ...................................................... 90 80 20 –20 –20 –20 –20 –60 20 20 ................ ................ ................ ................ ................ ................ 77 Deferral of capital gains with respect of dispositions of transmission property ... ............ –490 –620 –530 –230 100 360 –920 ................ ................ ................ ................ ................ ................ ................ ................ Education, training, employment, and social services Education: 78 Exclusion of scholarship and fellowship income (normal tax method) ............ ............ ............ ................ ................ ................ ................ ................ ................ 1,450 1,540 1,610 1,680 1,760 1,840 1,930 8,820 79 HOPE tax credit .................................... ............ ............ ................ ................ ................ ................ ................ ................ 4,260 4,38