Changing Tax Policy to Broaden Tax Base: Subsidies + Tax Expenditures =
70% of USA Inc.’s Cash Flow Deficit
USA Inc.’s Deficit vs. Aggregate Subsidies and Tax Expenditures*, F2009
1,600 ——
& 1,400 5 = Some tax expenditures favor V7 consumption... Qo 1,200 ied Such as tax exemption on 5 4.000 employer contributions to health = , insurance & deductibility of 7 mortgage interest on owner- = 800 occupied homes... i} * & 0 600 1 ...But others favor saving, Sg investment, and growth 3 g 400 3 Such as tax exemptions / a deductibility on capital gains / 3 200 dividends / pension contributions u & savings / accelerated
' depreciation of equipment...
F2009 Deficit F2009 Subsidies & Tax
Expenditures Note: *Each foregone revenue estimate assumes ail other parts of the Tax Code remain unchanged during F2009. Aggregate tax subsidies presented here is simply the sum of individual estimates. In reality, the aggregate estimate would be different if tax subsidies were changed simultaneously because of potential interactions
among provisions. KP Source: White House OMB, “Analytical Perspective — Budget of the U.S. Government, Fiscal Year 2011.” (@)E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 403
Raising Revenue by Reducing Tax Expenditures & Subsidies: Examples
* Reducing the biggest tax expenditures and subsidies could net $1.7 trillion in additional revenue over the next decade, per CBO and the Committee for a Responsible Federal Budget:
— Reduce the tax exclusion for health insurance or replace with a credit — Cap the deduction for state and local taxes
Gradually reduce the mortgage interest deduction or change to a credit Limit the tax benefit of other deductions, e.g., charitable contributions
¢« Some subsidies encourage saving or investment...and cutting them could mean short-term revenue gain but a net loss over time. Examples:
— Favorable taxation of capital gains, dividends, and pension contributions — Exclude investment income from life insurance and annuities in taxable income — Accelerated depreciation or expensing of capital equipment outlays
Source: Sources: Congressional Budget Office, Budget Options Volume 1: Health Care and Volume 2, 2009; Committee for a KP Responsible Federal Budget, Let’s Get Specific: Tax Expenditures (October 2010)
(@E) www.kpcb.com USA Inc. | What Might a Turnaround Expert Consider? 404
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