THE COST OF A LOOPHOLE
November 16, 2004
President Bush plans to simplify the tax code by closing loopholes; this will raise revenue so that tax rates can be lowered, say observers.
But in order to do so, some of the biggest, and thus most cherished loopholes must be eliminated:
- Jonathan Fuerbringer of the New York Times reports that closing tax loopholes could amount to $355 billion in new revenue.
- If all loopholes were eliminated, the average tax rate (currently about 21 percent) could be lowered by 5.8 percent, with the government still raising the same amount of revenue.
- Some of the largest loopholes include mortgage interest ($116 billion), state and local taxes paid ($108 billion), charitable contributions ($49 billion), medical expenses ($16 billion) and the child tax credit ($22 billion).
In order to achieve more than incremental rate cuts for individuals, President Bush will have to attack sacred cows, Goldman Sachs said in a report last week. Without including the deduction of interest paid on mortgages and deductions for charitable contributions, the president and Congress will have to "do an exceptional job of removing almost every other loophole."
Source: Jonathan Fuerbringer, "Gauging the Cost of a Loophole," New York Times, November 14, 2004.
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