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 _ $1,413B S 1,400 -----—- Bo 5 = Some tax expenditures favor s 4.500 consumption... ao 3 ——_— EE a * Such as tax exemption on 4 4.000 ------- — $981BF employer contributions to health = , insurance & deductibility of 5 mortgage interest on owner- > g00 ------- co as a a a ss ne = occupied homes... 0 600 ------- oo ------ a ,,,But others favor saving, Ss investment, and growth 2 400 ---—-——— ee He 3 Such as tax exemptions / a deductibility on capital gains / 3 200 ---- ae $3 oo dividends / pension contributions u a & savings / accelerated 0 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.” i 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 gain