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The Distributional Implications of Tax Expenditures and Comprehensive Income Taxation
By:Daniel H. Weinberg
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Tax expenditures (deviations from the |normal| tax structure) and other provisions of the tax code result in revenue losses to the federal government. This paper uses microsimulation to provide estimates of individual effects of the major provision of the individual income tax code on the income distribution. The combination of exclusions from adjusted gross income and deductions from taxable income lead to approximately $250 billion in revenue loss. When all tax expenditures are examined together, at least half of the benefits of tax expenditures go to the one-fifth of families with the highest incomes and three-quarters go to the two-fifths with highest incomes. The poorest two-fifths get less than one-fifth of the total benefits from tax expenditures. Both 1979 and 1983 tax law increased income equality-- by 7 percent and 6 percent, respectively. The most income-leveling alternative tested here would increase equality another 4 percent. The Tax Reform Act of 1976 will reduce income inequality, but only slightly when compared to the old law.

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