JCT Estimates Revenue Effects of Repealing Tax Expenditures

Published by Michael Novogradac on Wednesday, November 2, 2011 - 12:00am

A repeal of “almost all of the major corporate tax expenditures,” on a revenue neutral basis, would result in the top corporate tax rate falling from 35% down to 28%, according to a Joint Committee of Taxation memo about the estimated revenue effects of corporate tax reform revenue raising provisions dated October 27, 2011. The 28% figure is short of Chairman Dave Camp’s goal of a top corporate tax rate of 25%. The analysis presented in the JCT memo was requested by Ranking House Ways and Means Democrat Sandy Levin.

Republican staff on the Ways and Means committee are pushing back on the 28% rate conclusion, as a number of items have not been scored yet, and the adequacy to which pass-through entities have been addressed is subject to substantial debate.

That said, some interesting facts are revealed:

  • Repeal of the low-income housing tax credit (LIHTC) saves only $4.8 billion over five years, less than 1% of total tax savings. (LIHTC repeal would save $34.8 billion over 10years, less than 3% of all tax savings.)
  • Repeal of the historic tax credit saves $1.7 billion over five years ($6 billion over 10 years).

The LIHTC ranks as the 5th most expensive of the tax expenditures reviewed by the JCT, although it is dwarfed by the top four corporate tax expenditures. (The number one corporate tax expenditure is more than 20 times more expensive than the LIHTC.)

Surprisingly, tax-exempt interest repeal is not scored in the JCT memo. There is a provision for private activity bonds (PABs), but not general tax-exempt obligations. The Controlled Foreign Corporation tax expenditure is also missing from the JCT memo. If these two provisions were included in the analysis, the tax savings from repeal of the LIHTC would rank 7th over 10 years, and 9th over five years.

The JCT scoring does include a provision that reduces the cost of certain tax expenditures based on the interaction of the repeal with lowering of the top corporate rate.