TAX EXPENDITURES 

The Congressional Budget Act of 1974 (Public Law 93–344) requires that a list of “tax expenditures’’ be included in the budget. 

Tax expenditures are defined in the law as “revenue losses attributable to provisions of the Federal tax laws which allow a special 

exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax 

liability.’’ These exceptions may be viewed as alternatives to other policy instruments, such as spending or regulatory programs. 

Identification and measurement of tax expenditures depends crucially on the baseline tax system against which the actual tax 

system is compared. The tax expenditure estimates presented in this document are patterned on a comprehensive income tax, which 

defines income as the sum of consumption and the change in net wealth in a given period of time. 

An important assumption underlying each tax expenditure estimate reported below is that other parts of the Tax Code remain 

unchanged. The estimates would be different if tax expenditures were changed simultaneously because of potential interactions among 

provisions. For that reason, this document does not present a grand total for the estimated tax expenditures. 

Tax expenditures relating to the individual and corporate income taxes are estimated for fiscal years 2016–2026 using two methods 

of accounting: current revenue effects and present value effects. The present value approach provides estimates of the revenue effects 

for tax expenditures that generally involve deferrals of tax payments into the future. 

TAX EXPENDITURES IN THE INCOME TAX 

Tax Expenditure Estimates 

All tax expenditure estimates and descriptions presented here are based upon current tax law enacted as of July 1, 2016, and reflect 

the economic assumptions from the Mid-Session Review of the 2017 Budget. In some cases, expired or repealed provisions are listed 

if their revenue effects occur in fiscal year 2016 or later. 

The total revenue effects for tax expenditures for fiscal years 2016–2026 are displayed according to the Budget’s functional 

categories in Table 1. Descriptions of the specific tax expenditure provisions follow the discussion of general features of the tax 

expenditure concept. 

Two baseline concepts—the normal tax baseline and the reference tax law baseline—are used to identify and estimate tax 

expenditures.1

 For the most part, the two concepts coincide. However, items treated as tax expenditures under the normal tax baseline, 

but not the reference tax law baseline, are indicated by the designation “normal tax method’’ in the tables. The revenue effects for 

these items are zero using the reference tax rules. The alternative baseline concepts are discussed in detail below. 

Tables 2A and 2B report separately the respective portions of the total revenue effects that arise under the individual and corporate 

income taxes. The location of the estimates under the individual and corporate headings does not imply that these categories of filers 

benefit from the special tax provisions in proportion to the respective tax expenditure amounts shown. Rather, these breakdowns show 

the form of tax liability that the various provisions affect. The ultimate beneficiaries of corporate tax expenditures could be 

shareholders, employees, customers, or other providers of capital, depending on economic forces. 

Table 3 ranks the major tax expenditures by the size of their 2017–2026 revenue effect. The first column provides the number of 

the provision in order to cross reference this table to Tables 1, 2A, and 2B, as well as to the descriptions below. 

Interpreting Tax Expenditure Estimates 

The estimates shown for individual tax expenditures in Tables 1 through 3 do not necessarily equal the increase in Federal revenues 

(or the change in the budget balance) that would result from repealing these special provisions, for the following reasons. 

First, eliminating a tax expenditure may have incentive effects that alter economic behavior. These incentives can affect the 

resulting magnitudes of the activity or of other tax provisions or Government programs. For example, if capital gains were taxed at 

ordinary rates, capital gain realizations would be expected to decline, resulting in lower tax receipts. Such behavioral effects are not 

reflected in the estimates. 

Second, tax expenditures are interdependent even without incentive effects. Repeal of a tax expenditure provision can increase or 

decrease the tax revenues associated with other provisions. For example, even if behavior does not change, repeal of an itemized 

deduction could increase the revenue costs from other deductions because some taxpayers would be moved into higher tax brackets. 

 

1 These baseline concepts are thoroughly discussed in Special Analysis G of the 1985 Budget, where the former is referred to as the pre-1983 method and the latter 

the post-1982 method. 

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Alternatively, repeal of an itemized deduction could lower the revenue cost from other deductions if taxpayers are led to claim the 

standard deduction instead of itemizing. Similarly, if two provisions were repealed simultaneously, the increase in tax liability could 

be greater or less than the sum of the two separate tax expenditures, because each is estimated assuming that the other remains in 

force. In addition, the estimates reported in Table 1 are the totals of individual and corporate income tax revenue effects reported in 

Tables 2A and 2B, and do not reflect any possible interactions between individual and corporate income tax receipts. For this reason, 

the estimates in Table 1 should be regarded as approximations. 

Present-Value Estimates 

The annual value of tax expenditures for tax deferrals is reported on a cash basis in all tables except Table 4. Cash-based estimates 

reflect the difference between taxes deferred in the current year and incoming revenues that are received due to deferrals of taxes from 

prior years. Although such estimates are useful as a measure of cash flows into the Government, they do not accurately reflect the true 

economic cost of these provisions. For example, for a provision where activity levels have changed over time, so that incoming tax 

receipts from past deferrals are greater than deferred receipts from new activity, the cash-basis tax expenditure estimate can be 

negative, despite the fact that in present-value terms current deferrals have a real cost to the Government. Alternatively, in the case of 

a newly enacted deferral provision, a cash-based estimate can overstate the real effect on receipts to the Government because the 

newly deferred taxes will ultimately be received. 

Discounted present-value estimates of revenue effects are presented in Table 4 for certain provisions that involve tax deferrals or 

other long-term revenue effects. These estimates complement the cash-based tax expenditure estimates presented in the other tables. 

The present-value estimates represent the revenue effects, net of future tax payments, that follow from activities undertaken during 

calendar year 2015 which cause the deferrals or other long-term revenue effects. For instance, a pension contribution in 2016 would 

cause a deferral of tax payments on wages in 2016 and on pension fund earnings on this contribution (e.g., interest) in later years. In 

some future year, however, the 2016 pension contribution and accrued earnings will be paid out and taxes will be due; these receipts 

are included in the present-value estimate. In general, this conceptual approach is similar to the one used for reporting the budgetary 

effects of credit programs, where direct loans and guarantees in a given year affect future cash flows. 

Tax Expenditure Baselines 

A tax expenditure is an exception to baseline provisions of the tax structure that usually results in a reduction in the amount of tax 

owed. The 1974 Congressional Budget Act, which mandated the tax expenditure budget, did not specify the baseline provisions of the 

tax law. As noted previously, deciding whether provisions are exceptions, therefore, is a matter of judgment. As in prior years, most of 

this year’s tax expenditure estimates are presented using two baselines: the normal tax baseline and the reference tax law baseline. Tax 

expenditures may take the form of credits, deductions, special exceptions and allowances. 

The normal tax baseline is patterned on a practical variant of a comprehensive income tax, which defines income as the sum of 

consumption and the change in net wealth in a given period of time. The normal tax baseline allows personal exemptions, a standard 

deduction, and deduction of expenses incurred in earning income. It is not limited to a particular structure of tax rates, or by a specific 

definition of the taxpaying unit. 

The reference tax law baseline is also patterned on a comprehensive income tax, but it is closer to existing law. Reference law tax 

expenditures are limited to special exceptions from a generally provided tax rule that serve programmatic functions in a way that is 

analogous to spending programs. Provisions under the reference law baseline are generally tax expenditures under the normal tax 

baseline, but the reverse is not always true. 

Both the normal and reference tax baselines allow several major departures from a pure comprehensive income tax. For example, 

under the normal and reference tax baselines: 

 Income is taxable only when it is realized in exchange. Thus, the deferral of tax on unrealized capital gains is not regarded as 

a tax expenditure. Accrued income would be taxed under a comprehensive income tax. 

There is a separate corporate income tax. 

Tax rates on noncorporate business income vary by level of income. 

 Individual tax rates, including brackets, standard deduction, and personal exemptions, are allowed to vary with marital status.

Values of assets and debt are not generally adjusted for inflation. A comprehensive income tax would adjust the cost basis of 

capital assets and debt for changes in the general price level. Thus, under a comprehensive income tax baseline, the failure to 

take account of inflation in measuring depreciation, capital gains, and interest income would be regarded as a negative tax 

expenditure (i.e., a tax penalty), and failure to take account of inflation in measuring interest costs would be regarded as a 

positive tax expenditure (i.e., a tax subsidy). 

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Although the reference law and normal tax baselines are generally similar, areas of difference include: 

Tax rates. The separate schedules applying to the various taxpaying units are included in the reference law baseline. Thus, 

corporate tax rates below the maximum statutory rate do not give rise to a tax expenditure. The normal tax baseline is similar, except 

that, by convention, it specifies the current maximum rate as the baseline for the corporate income tax. The lower tax rates applied to 

the first $10 million of corporate income are thus regarded as a tax expenditure under the normal tax. By convention, the Alternative 

Minimum Tax is treated as part of the baseline rate structure under both the reference and normal tax methods. 

Income subject to the tax. Income subject to tax is defined as gross income less the costs of earning that income. Under the 

reference tax rules, gross income does not include gifts defined as receipts of money or property that are not consideration in an 

exchange nor does gross income include most transfer payments from the Government.2

 The normal tax baseline also excludes gifts 

between individuals from gross income. Under the normal tax baseline, however, all cash transfer payments from the Government to 

private individuals are counted in gross income, and exemptions of such transfers from tax are identified as tax expenditures. The 

costs of earning income are generally deductible in determining taxable income under both the reference and normal tax baselines.3

 

Capital recovery. Under the reference tax law baseline no tax expenditures arise from accelerated depreciation. Under the normal 

tax baseline, the depreciation allowance for property is computed using estimates of economic depreciation. 

Treatment of foreign income. Both the normal and reference tax baselines allow a tax credit for foreign income taxes paid (up to the 

amount of U.S. income taxes that would otherwise be due), which prevents double taxation of income earned abroad. Under the 

normal tax method, however, controlled foreign corporations (CFCs) are not regarded as entities separate from their controlling U.S. 

shareholders. Thus, the deferral of tax on income received by CFCs is regarded as a tax expenditure under this method. In contrast, 

except for tax haven activities, the reference law baseline follows current law in treating CFCs as separate taxable entities whose 

income is not subject to U.S. tax until distributed to U.S. taxpayers. Under this baseline, deferral of tax on CFC income is not a tax 

expenditure because U.S. taxpayers generally are not taxed on accrued, but unrealized, income. 

Descriptions of Income Tax Provisions 

Descriptions of the individual and corporate income tax expenditures reported on in this document follow. These descriptions relate 

to current law as of July 1, 2016. 

National Defense 

1. Exclusion of benefits and allowances to armed forces personnel.—Under the baseline tax system, all compensation, 

including dedicated payments and in-kind benefits, should be included in taxable income because they represent accretions to wealth 

that do not materially differ from cash wages. As an example, a rental voucher of $100 is (approximately) equal in value to $100 of 

cash income. In contrast to this treatment, certain housing and meals, in addition to other benefits provided military personnel, either 

in cash or in kind, as well as certain amounts of pay related to combat service, are excluded from income subject to tax. 

International Affairs 

2. Exclusion of income earned abroad by U.S. citizens.—Under the baseline tax system, all compensation received by U.S. 

citizens and residents is properly included in their taxable income. It makes no difference whether the compensation is a result of 

working abroad or whether it is labeled as a housing allowance. In contrast to this treatment, U.S. tax law allows U.S. citizens and 

residents who live abroad, work in the private sector, and satisfy a foreign residency requirement to exclude up to $80,000, plus 

adjustments for inflation since 2004, in foreign earned income from U.S. taxes. In addition, if these taxpayers are provided housing by 

their employers, then they may also exclude the cost of such housing from their income to the extent that it exceeds 16 percent of the 

earned income exclusion limit. This housing exclusion is capped at 30 percent of the earned income exclusion limit, with 

geographical adjustments. If taxpayers do not receive a specific allowance for housing expenses, they may deduct housing expenses 

up to the amount by which foreign earned income exceeds their foreign earned income exclusion. 

3. Exclusion of certain allowances for Federal employees abroad.—In general, all compensation received by U.S. citizens and 

residents is properly included in their taxable income. It makes no difference whether the compensation is a result of working abroad 

or whether it is labeled as an allowance for the high cost of living abroad. In contrast to this treatment, U.S. Federal civilian employees 

and Peace Corps members who work outside the continental United States are allowed to exclude from U.S. taxable income certain 

 

2 Gross income does, however, include transfer payments associated with past employment, such as Social Security benefits. 

3 In the case of individuals who hold “passive’’ equity interests in businesses, the pro-rata shares of sales and expense deductions reportable in a year are limited. A 

passive business activity is defined generally to be one in which the holder of the interest, usually a partnership interest, does not actively perform managerial or other 

participatory functions. The taxpayer may generally report no larger deductions for a year than will reduce taxable income from such activities to zero. Deductions in 

excess of the limitation may be taken in subsequent years, or when the interest is liquidated. In addition, costs of earning income may be limited under the Alternative 

Minimum Tax. 

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special allowances they receive to compensate them for the relatively high costs associated with living overseas. The allowances 

supplement wage income and cover expenses such as rent, education, and the cost of travel to and from the United States. 

4. Inventory property sales source rules exception.—The United States generally taxes the worldwide income of U.S. persons 

and business entities. Under the baseline tax system, taxpayers receive a credit for foreign taxes paid which is limited to the pre-credit 

U.S. tax on the foreign source income. In contrast, the sales source rules for inventory property under current law allow U.S. exporters 

to use more foreign tax credits by allowing the exporters to attribute a larger portion of their earnings to foreign sources than would be 

the case if the allocation of earnings was based on actual economic activity. 

5. Deferral of income from controlled foreign corporations (normal tax method).—Under the baseline tax system, the United 

States generally taxes the worldwide income of U.S. persons and business entities. In contrast, certain active income of foreign 

corporations controlled by U.S. shareholders is not subject to U.S. taxation when it is earned. The income becomes taxable only when 

the controlling U.S. shareholders receive dividends or other distributions from their foreign stockholding. The reference law tax 

baseline reflects this tax treatment where only realized income is taxed. Under the normal tax method, however, the currently 

attributable foreign source pre-tax income from such a controlling interest is considered to be subject to U.S. taxation, whether or not 

distributed. Thus, the normal tax method considers the amount of controlled foreign corporation income not yet distributed to a U.S. 

shareholder as tax-deferred income. 

6. Deferred taxes for financial firms on certain income earned overseas.—The United States generally taxes the worldwide 

income of U.S. persons and business entities. The baseline tax system would not allow the deferral of tax or other relief targeted at 

particular industries or activities. In contrast, the Tax Code allows financial firms to defer taxes on income earned overseas in an 

active business. 

General Science, Space, and Technology 

7. Expensing of research and experimentation expenditures (normal tax method).—The baseline tax system allows a 

deduction for the cost of producing income. It requires taxpayers to capitalize the costs associated with investments over time to better 

match the streams of income and associated costs. Research and experimentation (R&E) projects can be viewed as investments 

because, if successful, their benefits accrue for several years. It is often difficult, however, to identify whether a specific R&E project 

is successful and, if successful, what its expected life will be. Because of this ambiguity, the reference law baseline tax system would 

allow expensing of R&E expenditures. In contrast, under the normal tax method, the expensing of R&E expenditures is viewed as a 

tax expenditure. The baseline assumed for the normal tax method is that all R&E expenditures are successful and have an expected life 

of five years. 

8. Credit for increasing research activities.—The baseline tax system would uniformly tax all returns to investments and not 

allow credits for particular activities, investments, or industries. In contrast, the Tax Code allows an R&E credit of up to 20 percent of 

qualified research expenditures in excess of a base amount. The base amount of the credit is generally determined by multiplying a 

“fixed-base percentage” by the average amount of the company’s gross receipts for the prior four years. The taxpayer’s fixed base 

percentage generally is the ratio of its research expenses to gross receipts for 1984 through 1988. Taxpayers can elect the alternative 

simplified credit regime, which equals 14 percent of qualified research expenses that exceed 50 percent of the average qualified 

research expenses for the three preceding taxable years. 

Energy 

9. Expensing of exploration and development costs.—Under the baseline tax system, the costs of exploring and developing oil 

and gas wells would be capitalized and then amortized (or depreciated) over an estimate of the economic life of the well. This insures 

that the net income from the well is measured appropriately each year. 

In contrast to this treatment, current law allows intangible drilling costs for successful investments in domestic oil and gas wells 

(such as wages, the cost of using machinery for grading and drilling, and the cost of unsalvageable materials used in constructing 

wells) to be deducted immediately, i.e., expensed. Because it allows recovery of costs sooner, expensing is more generous for the 

taxpayer than amortization. Integrated oil companies may deduct only 70 percent of such costs and must amortize the remaining 30 

percent over five years. Non-integrated oil companies may expense all such costs. The same rule applies to the exploration and 

development costs of surface stripping and the construction of shafts and tunnels for other fuel minerals. 

10. Excess of percentage over cost depletion.—The baseline tax system would allow recovery of the costs of developing certain 

oil and mineral properties using cost depletion. Cost depletion is similar in concept to depreciation, in that the costs of developing or 

acquiring the asset are capitalized and then gradually reduced over an estimate of the asset’s economic life, as is appropriate for 

measuring net income. 

In contrast, the Tax Code generally allows independent fuel and mineral producers and royalty owners to take percentage depletion 

deductions rather than cost depletion on limited quantities of output. Under percentage depletion, taxpayers deduct a percentage of 

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gross income from fossil fuel production. In certain cases the deduction is limited to a fraction of the asset’s net income. Over the life 

of an investment, percentage depletion deductions can exceed the cost of the investment. Consequently, percentage depletion offers 

more generous tax treatment than would cost depletion, which would limit deductions to an investment’s cost. 

11. Exception from passive loss limitation for working interests in oil and gas properties.—The baseline tax system accepts 

current law’s general rule limiting taxpayers’ ability to deduct losses from passive activities against nonpassive income (e.g., wages, 

interest, and dividends). Passive activities generally are defined as those in which the taxpayer does not materially participate, and 

there are numerous additional considerations brought to bear on the determination of which activities are passive for a given taxpayer. 

Losses are limited in an attempt to limit tax sheltering activities. Passive losses that are unused may be carried forward and applied 

against future passive income. 

An exception from the passive loss limitation is provided for a working interest in an oil or gas property that the taxpayer holds 

directly or through an entity that does not limit the liability of the taxpayer with respect to the interest. Thus, taxpayers can deduct 

losses from such working interests against nonpassive income without regard to whether they materially participate in the activity. 

12. Capital gains treatment of royalties on coal.—The baseline tax system generally would tax all income under the regular tax 

rate schedule. It would not allow preferentially low tax rates to apply to certain types or sources of income. For individuals, tax rates 

on regular income vary from 10 percent to 39.6 percent (plus a 3.8-percent surtax on high income taxpayers), depending on the 

taxpayer’s income. In contrast, current law allows capital gains realized by individuals to be taxed at a preferentially low rate that is no 

higher than 20 percent (plus the 3.8-percent surtax). Certain sales of coal under royalty contracts qualify for taxation as capital gains 

rather than ordinary income, and so benefit from the preferentially low 20 percent maximum tax rate on capital gains. 

13. Exclusion of interest on energy facility bonds.—The baseline tax system generally would tax all income under the regular 

tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, 

the Tax Code allows interest earned on State and local bonds used to finance construction of certain energy facilities to be exempt 

from tax. These bonds are generally subject to the State private-activity-bond annual volume cap. 

14. Energy production credit.—The baseline tax system would not allow credits for particular activities, investments, or 

industries. Instead, it generally would seek to tax uniformly all returns from investment-like activities. In contrast, the Tax Code 

provides a credit for certain electricity produced from wind energy, biomass, geothermal energy, solar energy, small irrigation power, 

municipal solid waste, or qualified hydropower and sold to an unrelated party. Wind facilities must have begun construction before 

January 1, 2020. Facilities that begin construction in 2017 receive 80 percent of the credit, facilities that begin construction in 2018 

receive 60 percent of the credit, and facilities that begin construction in 2019 receive 40 percent of the credit. Qualified facilities 

producing electricity from sources other than wind must begin construction before January 1, 2017. In addition to the electricity 

production credit, an income tax credit is allowed for the production of refined coal for facilities placed in service before January 1, 

2012. The Tax Code also provided an income tax credit for Indian coal facilities. . The Indian coal facilities credit expires on 

December 31, 2016. 

15. Marginal wells credit.—A credit is provided for crude oil and natural gas produced from a qualified marginal well. A 

marginal well is one that does not produce more than 1,095 barrel-of-oil equivalents per year, with this limit adjusted proportionately 

for the number of days the well is in production. The credit is no more than $3.00 per barrel of qualified crude oil production and 

$0.50 per thousand cubic feet of qualified natural gas production. The credit for natural gas is reduced in proportion to the amount by 

which the reference price of natural gas at the wellhead exceeds $1.67 per thousand cubic feet and is zero for a reference price that 

exceeds $2.00. The credit for crude oil is reduced in proportion to the amount by which the reference price of oil exceeds $15.00 per 

barrel and is zero for a reference price that exceeds $18.00. All dollar amounts are adjusted for inflation from 2004. 

16. Energy investment credit.—The baseline tax system would not allow credits for particular activities, investments, or 

industries. Instead, it generally would seek to tax uniformly all returns from investment-like activities. However, the Tax Code 

provides credits for investments in solar and geothermal energy property, qualified fuel cell power plants, stationary microturbine 

power plants, geothermal heat pumps, small wind property and combined heat and power property. A temporary credit of up to 30 

percent is available for certain qualified property placed in service before January 1, 2017. For solar energy, a temporary credit is 

available for property for which construction begins before January 1, 2022, and which is placed in service before January 1, 2024. 

The credit is 30 percent for property that begins construction before 2020, 26 percent for property that begins construction in 2020, 

and 22 percent for property that begins construction in 2021. A permanent 10 percent credit is available for geothermal property 

placed in service after December 31, 2017 and for qualified solar property for which construction begins after December 31, 2021 or 

that is placed in service after December 31, 2023. . Owners of renewable power facilities that qualify for the energy production credit 

may instead elect to take an energy investment credit at a rate specified by law. 

17. Alcohol fuel credits.—The baseline tax system would not allow credits for particular activities, investments, or industries. 

Instead, it generally would seek to tax uniformly all returns from investment-like activities. In contrast, the Tax Code provided an 

income tax credit for qualified cellulosic biofuel production which was renamed the Second generation biofuel producer credit. This 

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provision expires on December 31, 2016. 

18. Bio-diesel and small agri-biodiesel producer tax credits.—The baseline tax system would not allow credits for particular 

activities, investments, or industries. Instead, it generally would seek to tax uniformly all returns from investment-like activities. 

However, the Tax Code allowed an income tax credit for Bio-diesel and for Bio-diesel derived from virgin sources. In lieu of the Biodiesel credit, the taxpayer could claim a refundable excise tax credit. In addition, small agri-biodiesel producers were eligible for a 

separate income tax credit for biodiesel production and a separate credit was available for qualified renewable diesel fuel mixtures. 

This provision expires on December 31, 2016. 

19. Tax credits for clean-fuel burning vehicles and refueling property.—The baseline tax system would not allow credits for 

particular activities, investments, or industries. Instead, it generally would seek to tax uniformly all returns from investment-like 

activities. In contrast, the Tax Code allows credits for plug-in electric-drive motor vehicles, alternative fuel vehicle refueling property, 

two-wheeled plug-in electric vehicles, and fuel cell motor vehicles. These provisions, except for the plug-in electric-drive motor 

vehicle credit, expire after December 31, 2016. 

20. Exclusion of utility conservation subsidies.—The baseline tax system generally takes a comprehensive view of taxable 

income that includes a wide variety of (measurable) accretions to wealth. In certain circumstances, public utilities offer rate subsidies 

to non-business customers who invest in energy conservation measures. These rate subsidies are equivalent to payments from the 

utility to its customer, and so represent accretions to wealth, income that would be taxable to the customer under the baseline tax 

system. In contrast, the Tax Code exempts these subsidies from the non-business customer’s gross income.

21. Credit for holding clean renewable energy bonds.—The baseline tax system would uniformly tax all returns to investments 

and not allow credits for particular activities, investments, or industries. In contrast, the Tax Code provides for the issuance of Clean 

Renewable Energy Bonds which entitles the bond holder to a Federal income tax credit in lieu of interest. As of March 2010, issuers 

of the unused authorization of such bonds could opt to receive direct payment with the yield becoming fully taxable. 

22. Deferral of gain from dispositions of transmission property to implement FERC restructuring policy.—The baseline tax 

system generally would tax gains from sale of property when realized. It would not allow an exception for particular activities or 

individuals. However, the Tax Code allowed electric utilities to defer gains from the sale of their transmission assets to a FERCapproved independent transmission company. The sale of property must have been made prior to January 1, 2017. 

23. Credit for investment in clean coal facilities.—The baseline tax system would uniformly tax all returns to investments and 

not allow credits for particular activities, investments, or industries. In contrast, the Tax Code provides investment tax credits for clean 

coal facilities producing electricity and for industrial gasification combined cycle projects. 

24. Temporary 50 percent expensing for equipment used in the refining of liquid fuels.—The baseline tax system allows the 

taxpayer to deduct the decline in the economic value of an investment over its economic life. However, the Tax Code provided for an 

accelerated recovery of the cost of certain investments in refineries by allowing partial expensing of the cost, thereby giving such 

investments a tax advantage. Qualified refinery property must have been placed in service before January 1, 2014. 

25. Natural gas distribution pipelines treated as 15-year property.—The baseline tax system allows taxpayers to deduct the 

decline in the economic value of an investment over its economic life. However, the Tax Code allows depreciation of natural gas 

distribution pipelines (placed in service between 2005 and 2011) over a 15 year period. These deductions are accelerated relative to 

deductions based on economic depreciation. 

26. Amortize all geological and geophysical expenditures over two years.—The baseline tax system allows taxpayers to deduct 

the decline in the economic value of an investment over its economic life. However, the Tax Code allows geological and geophysical 

expenditures incurred in connection with oil and gas exploration in the United States to be amortized over two years for non-integrated 

oil companies, a span of time that is generally shorter than the economic life of the assets. 

27. Allowance of deduction for certain energy efficient commercial building property.—The baseline tax system would not 

allow deductions in lieu of normal depreciation allowances for particular investments in particular industries. Instead, it generally 

would seek to tax uniformly all returns from investment-like activities. In contrast, the Tax Code allows a deduction for certain energy 

efficient commercial building property. The basis of such property is reduced by the amount of the deduction. This provision expires 

on December 31, 2016. 

28. Credit for construction of new energy efficient homes.—The baseline tax system would not allow credits for particular 

activities, investments, or industries. Instead, it generally would seek to tax uniformly all returns from investment-like activities. 

However, the Tax Code allowed contractors a tax credit of $2,000 for the construction of a qualified new energy-efficient home that 

had an annual level of heating and cooling energy consumption at least 50 percent below the annual consumption under the 2006 

International Energy Conservation Code. The credit equaled $1,000 in the case of a new manufactured home that met a 30 percent 

standard or requirements for EPA's Energy Star homes. This provision expires on December 31, 2016. 

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29. Credit for energy efficiency improvements to existing homes.—The baseline tax system would not allow credits for 

particular activities, investments, or industries. However, the Tax Code provided an investment tax credit for expenditures made on 

insulation, exterior windows, and doors that improved the energy efficiency of homes and met certain standards. The Tax Code also 

provided a credit for purchases of advanced main air circulating fans, natural gas, propane, or oil furnaces or hot water boilers, and 

other qualified energy efficient property. This provision expires on December 31, 2016. 

30. Credit for residential energy efficient property.—The baseline tax system would uniformly tax all returns to investments and 

not allow credits for particular activities, investments, or industries. However, the Tax Code provides a credit for the purchase of a 

qualified photovoltaic property and solar water heating property, as well as for fuel cell power plants, geothermal heat pumps and 

small wind property used in or placed on a residence. The credit for qualified solar electric and solar water heating property is 30 

percent for property placed in service before January 1, 2020, 26 percent for property placed in service in 2020, and 22 percent for 

property placed in service in 2021. The credit for fuel cell, small wind, and geothermal heat pump property is 30 percent for property 

placed in service before January 1, 2017. 

31. Credit for qualified energy conservation bonds.—The baseline tax system would uniformly tax all returns to investments 

and not allow credits for particular activities, investments, or industries. However, the Tax Code provides for the issuance of energy 

conservation bonds which entitle the bond holder to a Federal income tax credit in lieu of interest. As of March 2010, issuers of the 

unused authorization of such bonds could opt to receive direct payment with the yield becoming fully taxable. 

32. Advanced energy property credit.—The baseline tax system would not allow credits for particular activities, investments, or 

industries. However, the Tax Code provides a 30 percent investment credit for property used in a qualified advanced energy 

manufacturing project. The Treasury Department may award up to $2.3 billion in tax credits for qualified investments. 

33. Advanced nuclear power facilities production credit.—The baseline tax system would not allow credits or deductions for 

particular activities, investments, or industries. Instead, it generally would seek to tax uniformly all returns from investment-like 

activities. In contrast, the Tax Code allows a tax credit equal to 1.8 cents times the number of kilowatt hours of electricity produced at 

a qualifying advanced nuclear power facility. A taxpayer may claim no more than $125 million per 1,000 megawatts of capacity. The 

Treasury Department may allocate up to 6,000 megawatts of credit-eligible capacity. 

34. Reduced tax rate for nuclear decommissioning funds.—The baseline tax system would uniformly tax all returns to 

investments and not allow special rates for particular activities, investments, or industries. In contrast, the Tax Code provides a special 

20% tax rate for investments made by Nuclear Decommissioning Reserve Funds. 

Natural Resources and Environment 

35. Expensing of exploration and development costs.—The baseline tax system allows the taxpayer to deduct the depreciation 

of an asset according to the decline in its economic value over time. However, certain capital outlays associated with exploration and 

development of nonfuel minerals may be expensed rather than depreciated over the life of the asset. 

36. Excess of percentage over cost depletion.—The baseline tax system allows the taxpayer to deduct the decline in the 

economic value of an investment over time. Under current law, however, most nonfuel mineral extractors may use percentage 

depletion (whereby the deduction is fixed as a percentage of revenue) rather than cost depletion, with percentage depletion rates 

ranging from 22 percent for sulfur to 5 percent for sand and gravel. Over the life of an investment, percentage depletion deductions 

can exceed the cost of the investment. Consequently, percentage depletion offers more generous tax treatment than would cost 

depletion, which would limit deductions to an investment’s cost.

37. Exclusion of interest on bonds for water, sewage, and hazardous waste facilities.—The baseline tax system generally 

would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain 

types or sources of income. In contrast, the Tax Code allows interest earned on State and local bonds used to finance construction of 

sewage, water, or hazardous waste facilities to be exempt from tax. These bonds are generally subject to the State private-activitybond annual volume cap. 

38. Capital gains treatment of certain timber.—The baseline tax system generally would tax all income under the regular tax 

rate schedule. It would not allow preferentially low tax rates to apply to certain types or sources of income. However, under current 

law certain timber sales can be treated as a capital gain rather than ordinary income and therefore subject to the lower capital-gains tax 

rate. For individuals, tax rates on regular income vary from 10 percent to 39.6 percent (plus a 3.8-percent surtax on high income 

taxpayers), depending on the taxpayer’s income. In contrast, current law allows capital gains to be taxed at a preferentially low rate 

that is no higher than 20 percent (plus the 3.8-percent surtax). 

39. Expensing of multi-period timber growing costs.—The baseline tax system requires the taxpayer to capitalize costs 

associated with investment property. However, most of the production costs of growing timber may be expensed under current law 

rather than capitalized and deducted when the timber is sold, thereby accelerating cost recovery. 

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40. Tax incentives for preservation of historic structures.—The baseline tax system would not allow credits for particular 

activities, investments, or industries. However, expenditures to preserve and restore certified historic structures qualify for an 

investment tax credit of 20 percent under current law for certified rehabilitation activities. The taxpayer’s recoverable basis must be 

reduced by the amount of the credit. 

41. Industrial CO2

 capture and sequestration tax credit.—The baseline tax system would uniformly tax all returns to 

investments and not allow credits for particular activities, investments, or industries. In contrast, the Tax Code allows a credit for 

qualified carbon dioxide captured at a qualified facility and disposed of in secure geological storage. In addition, the provision allows 

a credit for qualified carbon dioxide that is captured at a qualified facility and used as a tertiary injectant in a qualified enhanced oil or 

natural gas recovery project. The credit is not allowed after the end of the calendar year in 75 million metric tons of qualified carbon 

dioxide are certified as having been taken into account. 

42. Deduction for endangered species recovery expenditures.—The baseline tax system would not allow deductions in addition 

to normal depreciation allowances for particular investments in particular industries. Instead, it generally would seek to tax uniformly 

all returns from investment-like activities. In contrast, under current law farmers can deduct up to 25 percent of their gross income for 

expenses incurred as a result of site and habitat improvement activities that will benefit endangered species on their farm land, in 

accordance with site specific management actions included in species recovery plans approved pursuant to the Endangered Species 

Act of 1973. 

Agriculture 

43. Expensing of certain capital outlays.—The baseline tax system requires the taxpayer to capitalize costs associated with 

investment property. However, farmers may expense certain expenditures for feed and fertilizer, for soil and water conservation 

measures and certain other capital improvements under current law. 

44. Expensing of certain multiperiod production costs.—The baseline tax system requires the taxpayer to capitalize costs 

associated with an investment over time. However, the production of livestock and crops with a production period greater than two 

years is exempt from the uniform cost capitalization rules (e.g., for costs for establishing orchards or structure improvements), thereby 

accelerating cost recovery. 

45. Treatment of loans forgiven for solvent farmers.—Because loan forgiveness increases a debtors net worth the baseline tax 

system requires debtors to include the amount of loan forgiveness as income or else reduce their recoverable basis in the property 

related to the loan. If the amount of forgiveness exceeds the basis, the excess forgiveness is taxable if the taxpayer is not insolvent. For 

bankrupt debtors, the amount of loan forgiveness reduces carryover losses, unused credits, and then basis, with the remainder of the 

forgiven debt excluded from taxation. Qualified farm debt that is forgiven, however, is excluded from income even when the taxpayer 

is solvent. 

46. Capital gains treatment of certain income.—For individuals, tax rates on regular income vary from 10 percent to 39.6 

percent (plus a 3.8-percent surtax on high income taxpayers), depending on the taxpayer’s income. The baseline tax system generally 

would tax all income under the regular tax rate schedule. It would not allow preferentially low tax rates to apply to certain types or 

sources of income. In contrast, current law allows capital gains to be taxed at a preferentially low rate that is no higher than 20 percent 

(plus the 3.8-percent surtax). Certain agricultural income, such as unharvested crops, qualify for taxation as capital gains rather than 

ordinary income, and so benefit from the preferentially low 20 percent maximum tax rate on capital gains. 

47. Income averaging for farmers.—The baseline tax system generally taxes all earned income each year at the rate determined 

by the income tax. However, taxpayers may average their taxable income from farming and fishing over the previous three years. 

48. Deferral of gain on sales of farm refiners.—The baseline tax system generally subjects capital gains to taxes the year that 

they are realized. However, the Tax Code allows a taxpayer who sells stock in a farm refiner to a farmers’ cooperative to defer 

recognition of the gain if the proceeds are re-invested in a qualified replacement property. 

49. Expensing of reforestation expenditures.—The baseline tax system requires the taxpayer to capitalize costs associated with 

an investment over time. In contrast, the Tax Code provides for the expensing of the first $10,000 in reforestation expenditures with 7-

year amortization of the remaining expenses. 

Commerce and Housing 

This category includes a number of tax expenditure provisions that also affect economic activity in other functional categories. For 

example, provisions related to investment, such as accelerated depreciation, could be classified under the energy, natural resources and 

environment, agriculture, or transportation categories. 

50. Exemption of credit union income.—Under the baseline tax system, corporations pay taxes on their profits under the regular 

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tax rate schedule. However, in the Tax Code the earnings of credit unions not distributed to members as interest or dividends are 

exempt from the income tax. 

51. Exclusion and deferral of policyholder income earned on life insurance and annuity contracts.— Under the baseline tax 

system, individuals and corporations generally pay taxes on their income when it is (actually or constructively) received or accrued, 

depending on their method of accounting. Nevertheless, the Tax Code provides favorable tax treatment for investment income earned 

within qualified life insurance and annuity contracts. In general, investment income credited to qualified life insurance contracts held 

until death is permanently exempt from income tax. Investment income distributed prior to the death of the insured is tax-exempt to 

the extent that investment in the contract is overstated (because amounts paid for the cost of life insurance protection are credited to 

investment in the contract).Any remaining distributed income is tax-deferred because, in general, it was not taxed when earned.. 

Investment income credited to annuities is taxed only when distributed, and therefore also benefits from tax deferral. 

52. Exclusion or special alternative tax for small property and casualty insurance companies.—Under the baseline tax system, 

corporations pay taxes on their profits under the regular tax rate schedule. The baseline tax system would not allow preferentially low 

(or zero) tax rates to apply to certain types or sources of income. Under current law, however, stock non-life insurance companies are 

generally exempt from tax if their gross receipts for the taxable year do not exceed $600,000 and more than 50 percent of such gross 

receipts consist of premiums. Mutual non-life insurance companies are generally tax-exempt if their annual gross receipts do not 

exceed $150,000 and more than 35 percent of gross receipts consist of premiums. Also, non-life insurance companies with no more 

than $1.2 million of annual net premiums generally may elect to pay tax only on their taxable investment income. 

53. Tax exemption of insurance income earned by tax-exempt organizations.—Under the baseline tax system, corporations pay 

taxes on their profits under the regular tax rate schedule. The baseline tax system would not allow preferentially low (or zero) tax rates 

to apply to certain types or sources of income. Generally the income generated by life and property and casualty insurance companies 

is subject to tax, albeit under special rules. However, income from insurance operations conducted by such exempt organizations as 

fraternal societies, voluntary employee benefit associations, and others are exempt from tax. 

54. Small life insurance company deduction.—Under the baseline tax system, corporations pay taxes on their profits under the 

regular tax rate schedule. The baseline tax system would not allow preferentially low (or zero) tax rates to apply to certain types or 

sources of income. Under current law, small life insurance companies (with gross assets of less than $500 million) can deduct 60 

percent of the first $3 million of otherwise taxable income. The deduction phases out for otherwise taxable income between $3 million 

and $15 million. 

55. Exclusion of interest spread of financial institutions.—The baseline tax system generally would tax all income under the 

regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. 

Consumers and non-profit organizations pay for some deposit-linked services, such as check cashing, by accepting a below-market 

interest rate on their demand deposits. If they received a market rate of interest on those deposits and paid explicit fees for the 

associated services, they would pay taxes on the full market rate and (unlike businesses) could not deduct the fees. The Government 

thus foregoes tax on the difference between the risk-free market interest rate and below-market interest rates on demand deposits, 

which under competitive conditions should equal the value added of deposit services. 

56. Exclusion of interest on owner-occupied mortgage subsidy bonds.—The baseline tax system generally would tax all income 

under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of 

income. In contrast, the Tax Code allows interest earned on State and local bonds used to finance homes purchased by first-time, lowto-moderate-income buyers to be exempt from tax. These bonds are generally subject to the State private-activity-bond annual volume 

cap. 

57. Exclusion of interest on rental housing bonds.—The baseline tax system generally would tax all income under the regular 

tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, 

the Tax Code allows interest earned on State and local government bonds used to finance multifamily rental housing projects to be 

tax-exempt. 

58. Mortgage interest expense on owner-occupied residences.—Under the baseline tax system, expenses incurred in earning 

income would be deductible. However, such expenses would not be deductible when the income or the return on an investment is not 

taxed. In contrast, the Tax Code allows an exclusion from a taxpayer’s taxable income for the value of owner-occupied housing 

services and also allows the owner-occupant to deduct mortgage interest paid on his or her primary residence and one secondary 

residence as an itemized non-business deduction. In general, the mortgage interest deduction is limited to interest on debt no greater 

than the owner’s basis in the residence, and is also limited to interest on debt of no more than $1 million. Interest on up to $100,000 of 

other debt secured by a lien on a principal or second residence is also deductible, irrespective of the purpose of borrowing, provided 

the total debt does not exceed the fair market value of the residence. As an alternative to the deduction, holders of qualified Mortgage 

Credit Certificates issued by State or local governmental units or agencies may claim a tax credit equal to a proportion of their interest 

expense. 

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59. Deduction for property taxes on real property.—Under the baseline tax system, expenses incurred in earning income would 

be deductible. However, such expenses would not be deductible when the income or the return on an investment is not taxed. In 

contrast, the Tax Code allows an exclusion from a taxpayer’s taxable income for the value of owner-occupied housing services and 

also allows the owner-occupant to deduct property taxes paid on real property. 

60. Deferral of income from installment sales.—The baseline tax system generally would tax all income under the regular tax 

rate schedule. It would not allow preferentially low (or zero) tax rates, or deferral of tax, to apply to certain types or sources of 

income. Dealers in real and personal property (i.e., sellers who regularly hold property for sale or resale) cannot defer taxable income 

from installment sales until the receipt of the loan repayment. Nondealers (i.e., sellers of real property used in their business) are 

required to pay interest on deferred taxes attributable to their total installment obligations in excess of $5 million. Only properties with 

sales prices exceeding $150,000 are includable in the total. The payment of a market rate of interest eliminates the benefit of the tax 

deferral. The tax exemption for nondealers with total installment obligations of less than $5 million is, therefore, a tax expenditure. 

61. Capital gains exclusion on home sales.—The baseline tax system would not allow deductions and exemptions for certain 

types of income. In contrast, the Tax Code allows homeowners to exclude from gross income up to $250,000 ($500,000 in the case of 

a married couple filing a joint return) of the capital gains from the sale of a principal residence. To qualify, the taxpayer must have 

owned and used the property as the taxpayer’s principal residence for a total of at least two of the five years preceding the date of sale. 

In addition, the exclusion may not be used more than once every two years. 

62. Exclusion of net imputed rental income.—Under the baseline tax system, the taxable income of a taxpayer who is an owneroccupant would include the implicit value of gross rental income on housing services earned on the investment in owner-occupied 

housing and would allow a deduction for expenses, such as interest, depreciation, property taxes, and other costs, associated with 

earning such rental income. In contrast, the Tax Code allows an exclusion from taxable income for the implicit gross rental income on 

housing services, while in certain circumstances allows a deduction for some costs associated with such income, such as for mortgage 

interest and property taxes. 

63. Exception from passive loss rules for $25,000 of rental loss.—The baseline tax system accepts current law’s general rule 

limiting taxpayers’ ability to deduct losses from passive activities against nonpassive income (e.g., wages, interest, and dividends). 

Passive activities generally are defined as those in which the taxpayer does not materially participate and there are numerous 

additional considerations brought to bear on the determination of which activities are passive for a given taxpayer. Losses are limited 

in an attempt to limit tax sheltering activities. Passive losses that are unused may be carried forward and applied against future passive 

income. In contrast to the general restrictions on passive losses, the Tax Code exempts certain owners of rental real estate activities 

from “passive income” limitations. The exemption is limited to $25,000 in losses and phases out for taxpayers with income between 

$100,000 and $150,000. 

64. Credit for low-income housing investments.—The baseline tax system would uniformly tax all returns to investments and 

not allow credits for particular activities, investments, or industries. However, under current law taxpayers who invest in certain lowincome housing are eligible for a tax credit. The credit rate is set so that the present value of the credit is equal to 70 percent for new 

construction and 30 percent for (1) housing receiving other Federal benefits (such as tax-exempt bond financing), or (2) substantially 

rehabilitated existing housing. The credit can exceed these levels in certain statutorily defined and State designated areas where 

project development costs are higher. The credit is allowed in equal amounts over 10 years and is generally subject to a volume cap. 

65. Accelerated depreciation on rental housing.—Under an economic income tax, the costs of acquiring a building are 

capitalized and depreciated over time in accordance with the decline in the property’s economic value due to wear and tear or

obsolescence. This insures that the net income from the rental property is measured appropriately each year. Current law allows 

depreciation that is accelerated relative to economic depreciation. However, the depreciation provisions of the Tax Code are part of 

the reference law rules, and thus do not give rise to tax expenditures under reference law. Under normal law, in contrast, depreciation 

allowances reflect estimates of economic depreciation. 

66. Discharge of mortgage indebtedness.—Under the baseline tax system, all income would generally be taxed under the regular 

tax rate schedule. The baseline tax system would not allow preferentially low (or zero) tax rates to apply to certain types or sources of 

income. In contrast, the Tax Code allowed an exclusion from a taxpayer’s taxable income for any discharge of indebtedness of up to 

$2 million ($1 million in the case of a married individual filing a separate return) from a qualified principal residence. The provision 

applied to debt discharged after January 1, 2007, and before January 1, 2017. 

67. Discharge of business indebtedness.—Under the baseline tax system, all income would generally be taxed under the regular 

tax rate schedule. The baseline tax system would not allow preferentially low (or zero) tax rates to apply to certain types or sources of 

income. In contrast, the Tax Code allows an exclusion from a taxpayer’s taxable income for any discharge of qualified real property 

business indebtedness by taxpayers other than a C corporation. If the canceled debt is not reported as current income, however, the 

basis of the underlying property must be reduced by the amount canceled. 

68. Exceptions from imputed interest rules.—Under the baseline tax system, holders (issuers) of debt instruments are generally 

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required to report interest earned (paid) in the period it accrues, not when received. In addition, the amount of interest accrued is 

determined by the actual price paid, not by the stated principal and interest stipulated in the instrument. But under current law, any 

debt associated with the sale of property worth less than $250,000 is exempted from the general interest accounting rules. This general 

$250,000 exception is not a tax expenditure under reference law but is under normal law. Current law also includes exceptions for 

certain property worth more than $250,000. These are tax expenditure under reference law and normal law. These exceptions include, 

sales of personal residences worth more than $250,000, and sales of farms and small businesses worth between $250,000 and $1 

million. 

69. Treatment of qualified dividends.—The baseline tax system generally would tax all income under the regular tax rate 

schedule. It would not allow preferentially low tax rates to apply to certain types or sources of income. For individuals, tax rates on 

regular income vary from 10 percent to 39.6 percent (plus a 3.8-percent surtax on high income taxpayers), depending on the 

taxpayer’s income. In contrast, under current law, qualified dividends are taxed at a preferentially low rate that is no higher than 20 

percent (plus the 3.8-percent surtax). 

70. Capital gains (except agriculture, timber, iron ore, and coal).—The baseline tax system generally would tax all income 

under the regular tax rate schedule. It would not allow preferentially low tax rates to apply to certain types or sources of income. For 

individuals, tax rates on regular income vary from 10 percent to 39.6 percent (plus a 3.8-percent surtax on high income taxpayers), 

depending on the taxpayer’s income. In contrast, under current law, capital gains on assets held for more than one year are taxed at a 

preferentially low rate that is no higher than 20 percent (plus the 3.8-percent surtax). 

71. Capital gains exclusion of small corporation stock.—The baseline tax system would not allow deductions and exemptions, 

or provide preferential treatment of certain sources of income or types of activities. In contrast, the Tax Code provided an exclusion of 

50 percent, applied to ordinary rates with a maximum of a 28 percent tax rate, for capital gains from qualified small business stock 

held by individuals for more than 5 years; 75 percent for stock issued after February 17, 2009 and before September 28, 2010; and 100 

percent for stock issued after September 27, 2010. A qualified small business is a corporation whose gross assets do not exceed $50 

million as of the date of issuance of the stock. 

72. Step-up basis of capital gains at death.—Under the baseline tax system, unrealized capital gains would be taxed when assets 

are transferred at death. It would not allow for exempting gains upon transfer of the underlying assets to the heirs. In contrast, capital 

gains on assets held at the owner’s death are not subject to capital gains tax under current law. The cost basis of the appreciated assets 

is adjusted to the market value at the owner’s date of death which becomes the basis for the heirs. 

73. Carryover basis of capital gains on gifts.—Under the baseline tax system, unrealized capital gains would be taxed when 

assets are transferred by gift. In contrast, when a gift of appreciated asset is made under current law, the donor’s basis in the 

transferred property (the cost that was incurred when the transferred property was first acquired) carries over to the donee. The 

carryover of the donor’s basis allows a continued deferral of unrealized capital gains.

74. Deferral of capital gains from like-kind exchanges.—The baseline tax system generally would tax all income under the 

regular tax rate schedule. It would not allow preferentially low (or zero) tax rates, or deferral of tax, to apply to certain types or 

sources of income. In contrast, current law allows the deferral of accrued gains on assets transferred in qualified like-kind exchanges. 

75. Ordinary income treatment of loss from small business corporation stock sale.—The baseline tax system limits to $3,000 

the write-off of losses from capital assets, with carryover of the excess to future years. In contrast, the Tax Code allows up to 

$100,000 in losses from the sale of small business corporate stock (capitalization less than $1 million) to be treated as ordinary losses 

and fully deducted. 

76. Depreciation of buildings other than rental housing.—Under an economic income tax, the costs of acquiring a building are 

capitalized and depreciated over time in accordance with the decline in the property’s economic value due to wear and tear or 

obsolescence. This insures that the net income from the property is measured appropriately each year. Current law allows depreciation 

deductions that differ from o those under economic depreciation. However, the depreciation provisions of the Tax Code are part of the 

reference law rules, and thus do not give rise to tax expenditures under reference law. Under normal law, in contrast, depreciation 

allowances reflect estimates of economic depreciation. 

77. Accelerated depreciation of machinery and equipment.—Under an economic income tax, the costs of acquiring machinery 

and equipment are capitalized and depreciated over time in accordance with the decline in the property’s economic value due to wear 

and tear or obsolescence. This insures that the net income from the property is measured appropriately each year. Current law allows 

depreciation deductions that are accelerated relative to economic depreciation. However, the depreciation provisions of the Tax Code 

are part of the reference law rules, and thus do not give rise to tax expenditures under reference law. Under normal law, in contrast 

depreciation allowances reflect estimates of economic depreciation. 

78. Expensing of certain small investments.—Under the reference law baseline, the costs of acquiring tangible property and 

computer software would be depreciated using the Tax Code’s depreciation provisions. Under the normal tax baseline, depreciation 

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allowances are estimates of economic depreciation. However, the Tax Code allows qualifying investments by small businesses in 

tangible property and certain computer software to be expensed rather than depreciated over time. 

79. Graduated corporation income tax rate.—Because the corporate rate schedule is part of reference tax law, it is not 

considered a tax expenditure under the reference method. A flat corporation income tax rate is taken as the baseline under the normal 

tax method; therefore the lower rate is considered a tax expenditure under this concept. 

80. Exclusion of interest on small issue bonds.—The baseline tax system generally would tax all income under the regular tax 

rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, the 

Tax Code allows interest earned on small issue industrial development bonds (IDBs) issued by State and local governments to finance 

manufacturing facilities to be tax exempt. Depreciable property financed with small issue IDBs must be depreciated, however, using 

the straight-line method. The annual volume of small issue IDBs is subject to the unified volume cap discussed in the mortgage 

housing bond section above. 

81. Deduction for U.S. production activities.—The baseline tax system generally would tax all income under the regular tax rate 

schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, the Tax 

Code allows for a deduction equal to a portion of taxable income attributable to domestic production. 

82. Special rules for certain film and TV production.—The baseline tax system generally would tax all income under the 

regular tax rate schedule. It would not allow deductions and exemptions or preferentially low (or zero) tax rates to apply to certain 

types or sources of income. In contrast, the Tax Code allowed taxpayers to deduct up to $15 million per production ($20 million in 

certain distressed areas) in non-capital expenditures incurred during the year. This provision expires at the end of 2016. 

Transportation 

83. Tonnage tax.—The baseline tax system generally would tax all profits and income under the regular tax rate schedule. U.S. 

shipping companies may choose to be subject to a tonnage tax based on gross shipping weight in lieu of an income tax, in which case 

profits would not be subject to tax under the regular tax rate schedule. 

84. Deferral of tax on shipping companies.—The baseline tax system generally would tax all profits and income under the 

regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In 

contrast, the Tax Code allows certain companies that operate U.S. flag vessels to defer income taxes on that portion of their income 

used for shipping purposes (e.g., primarily construction, modernization and major repairs to ships, and repayment of loans to finance 

these investments). 

85. Exclusion of reimbursed employee parking expenses.—Under the baseline tax system, all compensation, including 

dedicated payments and in-kind benefits, would be included in taxable income. Dedicated payments and in-kind benefits represent 

accretions to wealth that do not differ materially from cash wages. In contrast, the Tax Code allows an exclusion from taxable income 

for employee parking expenses that are paid for by the employer or that are received by the employee in lieu of wages. In 2016, the 

maximum amount of the parking exclusion is $255 per month. The tax expenditure estimate does not include any subsidy provided 

through employer-owned parking facilities. 

86. Exclusion for employer-provided transit passes.—Under the baseline tax system, all compensation, including dedicated 

payments and in-kind benefits, would be included in taxable income. Dedicated payments and in-kind benefits represent accretions to 

wealth that do not differ materially from cash wages. In contrast, the Tax Code allows an exclusion from a taxpayer’s taxable income 

for passes, tokens, fare cards, and vanpool expenses that are paid for by an employer or that are received by the employee in lieu of 

wages to defray an employee’s commuting costs. Due to a parity to parking provision, the maximum amount of the transit exclusion is 

$255 per month in 2016. 

87. Tax credit for certain expenditures for maintaining railroad tracks.—The baseline tax system would not allow credits for 

particular activities, investments, or industries. However, the Tax Code allowed eligible taxpayers to claim a credit equal to the lesser 

of 50 percent of maintenance expenditures and the product of $3,500 and the number of miles of track owned or leased. This provision 

applies to maintenance expenditures in taxable years beginning before January 1, 2017.

88. Exclusion of interest on bonds for Highway Projects and rail-truck transfer facilities.—The baseline tax system generally 

would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain 

types or sources of income. In contrast, the Tax Code provides for $15 billion of tax-exempt bond authority to finance qualified 

highway or surface freight transfer facilities. 

Community and Regional Development 

89. Investment credit for rehabilitation of structures.—The baseline tax system would uniformly tax all returns to investments 

and not allow credits for particular activities, investments, or industries. However, the Tax Code allows a 10-percent investment tax 

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credit for the rehabilitation of buildings that are used for business or productive activities and that were erected before 1936 for other 

than residential purposes. The taxpayer’s recoverable basis must be reduced by the amount of the credit. 

90. Exclusion of interest for airport, dock, and similar bonds.—The baseline tax system generally would tax all income under 

the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In 

contrast, the Tax Code allows interest earned on State and local bonds issued to finance high-speed rail facilities and Governmentowned airports, docks, wharves, and sport and convention facilities to be tax-exempt. These bonds are not subject to a volume cap. 

91. Exemption of certain mutuals' and cooperatives' income.—Under the baseline tax system, corporations pay taxes on their 

profits under the regular tax rate schedule. In contrast, the Tax Code provides for the incomes of mutual and cooperative telephone 

and electric companies to be exempt from tax if at least 85 percent of their revenues are derived from patron service charges. 

92. Empowerment zones.—The baseline tax system generally would tax all income under the regular tax rate schedule. It would 

not allow preferentially low tax rates to apply to certain types or sources of income, tax credits, and write-offs faster than economic 

depreciation. In contrast, the Tax Code allowed qualifying businesses in designated economically depressed areas to receive tax 

benefits such as an employment credit, increased expensing of investment in equipment, special tax-exempt financing, and certain 

capital gains incentives. A taxpayer’s ability to accrue new tax benefits for empowerment zones expires on December 31, 2016. 

93. New markets tax credit.—The baseline tax system would not allow credits for particular activities, investments, or industries. 

However, the Tax Code allowed taxpayers who made qualified equity investments in a community development entity (CDE), which 

then made qualified investments in low-income communities, to be eligible for a tax credit that is received over 7 years. The total 

equity investment available for the credit across all CDEs is $3.5 billion for each calendar year 2010 through 2019, the last year for 

which credit allocations are authorized. 

94. Credit to holders of Gulf and Midwest Tax Credit Bonds.—The baseline tax system would not allow credits for particular 

activities, investments, or industries. Instead, under current law taxpayers that own Gulf and Midwest Tax Credit bonds receive a nonrefundable tax credit rather than interest. The credit is included in gross income. 

95. Recovery Zone Bonds.—The baseline tax system would not allow credits for particular activities, investments, or industries. 

In addition, it would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to 

apply to certain types or sources of income. In contrast, the Tax Code allowed local governments to issue up $10 billion in taxable 

Recovery Zone Economic Development Bonds in 2009 and 2010 and receive a direct payment from Treasury equal to 45 percent of 

interest expenses. In addition, local governments could issue up to $15 billion in tax exempt Recovery Zone Facility Bonds. These 

bonds financed certain kinds of business development in areas of economic distress. 

96. Tribal Economic Development Bonds.—The baseline tax system generally would tax all income under the regular tax rate 

schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, the Tax 

Code was modified in 2009 to allow Indian tribal governments to issue tax exempt “tribal economic development bonds.” There is a 

national bond limitation of $2 billion on such bonds. 

Education, Training, Employment, and Social Services 

97. Exclusion of scholarship and fellowship income.—Scholarships and fellowships are excluded from taxable income to the 

extent they pay for tuition and course-related expenses of the grantee. Similarly, tuition reductions for employees of educational 

institutions and their families are not included in taxable income. From an economic point of view, scholarships and fellowships are 

either gifts not conditioned on the performance of services, or they are rebates of educational costs. Thus, under the baseline tax 

system of the reference law method, this exclusion is not a tax expenditure because this method does not include either gifts or price 

reductions in a taxpayer’s gross income. The exclusion, however, is considered a tax expenditure under the normal tax method, which 

includes gift-like transfers of Government funds in gross income (many scholarships are derived directly or indirectly from 

Government funding). 

98. Tax credits and deductions for post-secondary education expenses.—The baseline tax system would not allow credits for 

particular activities, investments, or industries. Under current law in 2016, however, there are two credits and one deduction for 

certain postsecondary education expenses. The American Opportunity Tax Credit allows a partially refundable credit of up to $2,500 

per eligible student for qualified tuition and related expenses paid during each of the first four years of the student’s post-secondary 

education. The credit is phased out for taxpayers with modified adjusted gross income between $160,000 and $180,000 if married 

filing jointly ($80,000 and $90,000 for other taxpayers), not indexed. The Lifetime Learning Credit allows a non-refundable credit for 

20 percent of an eligible student’s qualified tuition and fees, up to a maximum credit per return of $2,000. In 2016, the credit is phased 

out ratably for taxpayers with modified AGI between $110,000 and $130,000 if married filing jointly ($55,000 and $65,000 for other 

taxpayers), indexed. The credit can be claimed in any year in which post-secondary education expenses are incurred. The deduction 

for post-secondary education expenses provides a maximum deduction of $4,000 for qualified post-secondary education expenses for 

taxpayers with modified adjusted gross income up to $130,000 if married filing jointly ($65,000 for other taxpayers). Taxpayers with 

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modified adjusted gross income up to $160,000 if married filing jointly ($80,000 for other taxpayers) could deduct up to $2,000 of 

qualified post-secondary education expenses. This provision expires on December 31, 2016. 

99. Education Individual Retirement Accounts (IRA).—The baseline tax system generally would tax all income under the 

regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. While 

contributions to an education IRA are not tax-deductible under current law, investment income earned by education IRAs is not taxed 

when earned, and investment income from an education IRA is tax-exempt when withdrawn to pay for a student’s education expenses. 

The maximum contribution to an education IRA in 2016 is $2,000 per beneficiary. In 2016, the maximum contribution is phased down 

ratably for taxpayers with modified AGI between $190,000 and $220,000 if married filing jointly ($95,000 and $110,000 for other 

taxpayers). 

100. Deductibility of student loan interest.—The baseline tax system accepts current law’s general rule limiting taxpayers’ ability 

to deduct non-business interest expenses. In contrast, taxpayers may claim an above-the-line deduction of up to $2,500 on interest paid 

on an education loan. In 2016, the maximum deduction is phased down ratably for taxpayers with modified AGI between $130,000 

and $160,000 if married filing jointly ($65,000 and $80,000 for other taxpayers). 

101. Qualified tuition programs.—The baseline tax system generally would tax all income under the regular tax rate schedule. It 

would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. Some States have adopted prepaid 

tuition plans, prepaid room and board plans, and college savings plans, which allow persons to pay in advance or save for college 

expenses for designated beneficiaries. Under current law, investment income, or the return on prepayments, is not taxed when earned, 

and is tax-exempt when withdrawn to pay for qualified expenses. 

102. Exclusion of interest on student-loan bonds.—The baseline tax system generally would tax all income under the regular tax 

rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, 

interest earned on State and local bonds issued to finance student loans is tax-exempt under current law. The volume of all such 

private activity bonds that each State may issue annually is limited. 

103. Exclusion of interest on bonds for private nonprofit educational facilities.—The baseline tax system generally would tax all 

income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources 

of income. In contrast, under current law interest earned on State and local Government bonds issued to finance the construction of 

facilities used by private nonprofit educational institutions is not taxed. 

104. Credit for holders of zone academy bonds.—The baseline tax system would not allow credits for particular activities, 

investments, or industries. Under current law, however, financial institutions that own zone academy bonds receive a non-refundable 

tax credit rather than interest. The credit is included in gross income. Proceeds from zone academy bonds may only be used to 

renovate, but not construct, qualifying schools and for certain other school purposes. The total amount of zone academy bonds that 

may be issued was limited to $1.4 billion in 2009 and 2010. As of March 2010, issuers of the unused authorization of such bonds 

could opt to receive direct payment with the yield becoming fully taxable. An additional $0.4 billion of these bonds with a tax credit 

was authorized to be issued each year in 2011 through 2016. 

105. Exclusion of interest on savings bonds redeemed to finance educational expenses.—The baseline tax system generally 

would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain 

types or sources of income. Under current law, however, interest earned on U.S. savings bonds issued after December 31, 1989 is taxexempt if the bonds are transferred to an educational institution to pay for educational expenses. The tax exemption is phased out for 

taxpayers with AGI between $116,300 and $146,300 if married filing jointly ($77,550 and $92,550 for other taxpayers) in 2016. 

106. Parental personal exemption for students age 19 or over.—Under the baseline tax system, a personal exemption would be 

allowed for the taxpayer, as well as for the taxpayer's spouse and dependents who do not claim a personal exemption on their own tax 

returns. To be considered a dependent, a child would have to be under age 19. In contrast, the Tax Code allows taxpayers to claim 

personal exemptions for children aged 19 to 23, as long as the children are full-time students and reside with the taxpayer for over half 

the year (with exceptions for temporary absences from home, such as for school attendance). 

107. Charitable contributions to educational institutions.—The baseline tax system would not allow a deduction for personal 

expenditures. In contrast, the Tax Code provides taxpayers a deduction for contributions to nonprofit educational institutions that are 

similar to personal expenditures. Moreover, taxpayers who donate capital assets to educational institutions can deduct the asset’s 

current value without being taxed on any appreciation in value. An individual’s total charitable contribution generally may not exceed 

50 percent of adjusted gross income; a corporation’s total charitable contributions generally may not exceed 10 percent of pre-tax 

income. 

108. Exclusion of employer-provided educational assistance.—Under the baseline tax system, all compensation, including 

dedicated payments and in-kind benefits, should be included in taxable income because they represent accretions to wealth that do not 

materially differ from cash wages. Under current law, however, employer-provided educational assistance is excluded from an 

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employee’s gross income, even though the employer’s costs for this assistance are a deductible business expense. The maximum 

exclusion is $5,250 per taxpayer. 

109. Special deduction for teacher expenses.—The baseline tax system would not allow a deduction for personal expenditures. In 

contrast, the Tax Code allowed educators in both public and private elementary and secondary schools, who worked at least 900 hours 

during a school year as a teacher, instructor, counselor, principal or aide, to subtract up to $250 of qualified expenses, indexed to 2014, 

when determining their adjusted gross income (AGI). 

110. Discharge of student loan indebtedness.—Under the baseline tax system, all compensation, including dedicated payments 

and in-kind benefits, should be included in taxable income. In contrast, the Tax Code allows certain professionals who perform in 

underserved areas or specific fields, and as a consequence have their student loans discharged, not to recognize such discharge as 

income. 

111. Qualified school construction bonds.—The baseline tax system would not allow credits for particular activities, investments, 

or industries. Instead, it generally would seek to tax uniformly all returns from investment-like activities. In contrast, the Tax Code 

was modified in 2009 to provide a tax credit in lieu of interest to holders of qualified school construction bonds. The national volume 

limit is $22.4 billion over 2009 and 2010. As of March 2010, issuers of such bonds could opt to receive direct payment with the yield 

becoming fully taxable. 

112. Work opportunity tax credit.—The baseline tax system would not allow credits for particular activities, investments, or 

industries. Instead, it generally would seek to tax uniformly all returns from investment-like activities. In contrast, the Tax Code 

provides employers with a tax credit for qualified wages paid to individuals. The credit applies to employees who began work on or 

before December 31, 2020 and who are certified as members of various targeted groups. The amount of the credit that can be claimed 

is 25 percent of qualified wages for employment less than 400 hours and 40 percent for employment of 400 hours or more. Generally, 

the maximum credit per employee is $2,400 and can only be claimed on the first year of wages an individual earns from an employer. 

However, the credit for long-term welfare recipients can be claimed on second year wages as well and has a $9,000 maximum. Also, 

certain categories of veterans are eligible for a higher maximum credit of up to $9,600. Employers must reduce their deduction for 

wages paid by the amount of the credit claimed. 

113. Employer-provided child care exclusion.—Under the baseline tax system, all compensation, including dedicated payments 

and in-kind benefits, should be included in taxable income. In contrast, under current law up to $5,000 of employer-provided child 

care is excluded from an employee’s gross income even though the employer’s costs for the child care are a deductible business 

expense. 

114. Employer-provided child care credit.—The baseline tax system would not allow credits for particular activities, investments, 

or industries. In contrast, current law provides a credit equal to 25 percent of qualified expenses for employee child care and 10 

percent of qualified expenses for child care resource and referral services. Employer deductions for such expenses are reduced by the 

amount of the credit. The maximum total credit is limited to $150,000 per taxable year. 

115. Assistance for adopted foster children.—Under the baseline tax system, all compensation, including dedicated payments and 

in-kind benefits, should be included in taxable income. Taxpayers who adopt eligible children from the public foster care system can 

receive monthly payments for the children’s significant and varied needs and a reimbursement of up to $2,000 for nonrecurring 

adoption expenses; special needs adoptions receive the maximum benefit even if that amount is not spent. These payments are 

excluded from gross income under current law. 

116. Adoption credit and exclusion.—The baseline tax system would not allow credits for particular activities. In contrast, 

taxpayers can receive a tax credit for qualified adoption expenses under current law. Taxpayers may also exclude qualified adoption 

expenses provided or reimbursed by an employer from income, subject to the same maximum amounts and phase-out as the credit. 

The same expenses cannot qualify for tax benefits under both programs; however, a taxpayer may use the benefits of the exclusion and 

the tax credit for different expenses. 

117. Exclusion of employee meals and lodging.—Under the baseline tax system, all compensation, including dedicated payments 

and in-kind benefits, should be included in taxable income. In contrast, under current law employer-provided meals and lodging are 

excluded from an employee’s gross income even though the employer’s costs for these items are a deductible business expense.

118. Credit for child and dependent care expenses.—The baseline tax system would not allow credits for particular activities or 

targeted at specific groups. In contrast, the Tax Code provides parents who work or attend school and who have child and dependent 

care expenses a tax credit. Expenditures up to a maximum $3,000 for one dependent and $6,000 for two or more dependents are 

eligible for the credit. The credit is equal to 35 percent of qualified expenditures for taxpayers with incomes of up to $15,000. The 

credit is reduced to a minimum of 20 percent by one percentage point for each $2,000 of income in excess of $15,000. 

119. Credit for disabled access expenditures.—The baseline tax system would not allow credits for particular activities, 

investments, or industries. In contrast, the Tax Code provides small businesses (less than $1 million in gross receipts or fewer than 31 

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full-time employees) a 50-percent credit for expenditures in excess of $250 to remove access barriers for disabled persons. The credit 

is limited to $5,000. 

120. Deductibility of charitable contributions, other than education and health.—The baseline tax system would not allow a 

deduction for personal expenditures including charitable contributions. In contrast, the Tax Code provides taxpayers a deduction for 

contributions to charitable, religious, and certain other nonprofit organizations. Taxpayers who donate capital assets to charitable 

organizations can deduct the assets’ current value without being taxed on any appreciation in value. An individual’s total charitable 

contribution generally may not exceed 50 percent of adjusted gross income; a corporation’s total charitable contributions generally 

may not exceed 10 percent of pre-tax income. 

121. Exclusion of certain foster care payments.—The baseline tax system generally would tax all income under the regular tax 

rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. Foster parents 

provide a home and care for children who are wards of the State, under contract with the State. Under current law, compensation 

received for this service is excluded from the gross incomes of foster parents; the expenses they incur are nondeductible. 

122. Exclusion of parsonage allowances.—Under the baseline tax system, all compensation, including dedicated payments and 

in-kind benefits, would be included in taxable income. Dedicated payments and in-kind benefits represent accretions to wealth that do 

not differ materially from cash wages. In contrast, the Tax Code allows an exclusion from a clergyman’s taxable income for the value 

of the clergyman’s housing allowance or the rental value of the clergyman’s parsonage.

123. Indian employment credit.—The baseline tax system would not allow credits for particular activities, investments, or 

industries. Instead, it generally would seek to tax uniformly all returns from investment-like activities. In contrast, the Tax Code 

provides employers with a tax credit for qualified wages paid to employees who are enrolled members of Indian tribes. The amount of 

the credit that could be claimed is 20 percent of the excess of qualified wages and health insurance costs paid by the employer in the 

current tax year over the amount of such wages and costs paid by the employer in 1993. Qualified wages and health insurance costs 

with respect to any employee for the taxable year could not exceed $20,000. Employees have to live on or near the reservation where 

he or she work to be eligible for the credit. Employers must reduce their deduction for wages paid by the amount of the credit claimed. 

The credit does not apply to taxable years beginning after December 31, 2016. 

124. Credit for employer differential wage payments.—The baseline tax system would not allow credits for particular activities, 

investments, or industries. In contrast, the Tax Code provides employers with a 20 percent tax credit for eligible differential wages 

paid to employees who are members of the uniformed services while on active duty for more than 30 days. The amount of eligible 

differential wage payments made to a qualified employee in a taxable year is capped at $20,000. Employers must reduce their 

deduction for wages paid by the amount of the credit claimed. 

Health 

125. Exclusion of employer contributions for medical insurance premiums and medical care.—Under the baseline tax system, 

all compensation, including dedicated payments and in-kind benefits, should be included in taxable income. In contrast, under current 

law, employer-paid health insurance premiums and other medical expenses (including long-term care) are not included in employee 

gross income even though they are deducted as a business expense by the employee. 

126. Self-employed medical insurance premiums.—Under the baseline tax system, all compensation and remuneration, including 

dedicated payments and in-kind benefits, should be included in taxable income. In contrast, under current law self-employed taxpayers 

may deduct their family health insurance premiums. Taxpayers without self-employment income are not eligible for this special 

deduction. The deduction is not available for any month in which the self-employed individual is eligible to participate in an 

employer-subsidized health plan and the deduction may not exceed the self-employed individual’s earned income from selfemployment. 

127. Medical Savings Accounts and Health Savings Accounts.—Under the baseline tax system, all compensation, including 

dedicated payments and in-kind benefits, should be included in taxable income. Also, the baseline tax system would not allow a 

deduction for personal expenditures and generally would tax investment earnings. In contrast, individual contributions to Archer 

Medical Savings Accounts (Archer MSAs) and Health Savings Accounts (HSAs) are allowed as a deduction in determining adjusted 

gross income whether or not the individual itemizes deductions. Employer contributions to Archer MSAs and HSAs are excluded 

from income and employment taxes. Archer MSAs and HSAs require that the individual have coverage by a qualifying high 

deductible health plan. Earnings from the accounts are excluded from taxable income. Distributions from the accounts used for 

medical expenses are not taxable. The rules for HSAs are generally more flexible than for Archer MSAs and the deductible 

contribution amounts are greater (in 2016, $3,350 for taxpayers with individual coverage and $6,750 for taxpayers with family 

coverage). Thus, HSAs have largely replaced MSAs. 

128. Deductibility of medical expenses.—The baseline tax system would not allow a deduction for personal expenditures. In 

contrast, under current law personal expenditures for medical care (including the costs of prescription drugs) exceeding 7.5 percent of 

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the taxpayer’s adjusted gross income are deductible. For tax years beginning after 2012, only medical expenditures exceeding 10 

percent of the taxpayer’s adjusted gross income are deductible. However, for the years 2013, 2014, 2015 and 2016, if either the 

taxpayer or the taxpayer’s spouse turns 65 before the end of the taxable year, the threshold remains at 7.5 percent of adjusted income. 

Beginning in 2017, the 10-percent threshold will apply to all taxpayers, including those over 65. 

129. Exclusion of interest on hospital construction bonds.—The baseline tax system generally would tax all income under the 

regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In 

contrast, under current law interest earned on State and local government debt issued to finance hospital construction is excluded from 

income subject to tax. 

130. Refundable Premium Assistance Tax Credit.—The baseline tax system would not allow credits for particular activities or 

targeted at specific groups. In contrast, for taxable years ending after 2013, the Tax Code provides a premium assistance credit to any 

eligible taxpayer for any qualified health insurance purchased through a Health Insurance Exchange. In general, an eligible taxpayer is 

a taxpayer with annual household income between 100% and 400% of the federal poverty level for a family of the taxpayer’s size and 

that does not have access to affordable minimum essential health care coverage. The amount of the credit equals the lesser of (1) the 

actual premiums paid by the taxpayer for such coverage or (2) the difference between the cost of a statutorily-identified benchmark 

plan offered on the exchange and a required payment by the taxpayer that increases with income. 

131. Credit for employee health insurance expenses of small business.—The baseline tax system would not allow credits for 

particular activities or targeted at specific groups. In contrast, the Tax Code provides a tax credit to qualified small employers that 

make a certain level of non-elective contributions towards the purchase of certain health insurance coverage for its employees. To 

receive a credit, an employer must have fewer than 25 full-time-equivalent employees whose average annual full-time-equivalent 

wages from the employer are less than $50,000 (indexed for taxable years after 2013). However, to receive a full credit, an employer 

must have no more than 10 full-time employees, and the average wage paid to these employees must be no more than $25,000 

(indexed for taxable years after 2013). A qualifying employer may claim the credit for any taxable year beginning in 2010, 2011, 

2012, and 2013 and for up to two years for insurance purchased through a Health Insurance Exchange thereafter. For taxable years 

beginning in 2010, 2011, 2012, and 2013, the maximum credit is 35 percent of premiums paid by qualified taxable employers and 25 

percent of premiums paid by qualified tax-exempt organizations. For taxable years beginning in 2014 and later years, the maximum 

tax credit increases to 50 percent of premiums paid by qualified taxable employers and 35 percent of premiums paid by qualified taxexempt organizations. 

132. Deductibility of charitable contributions to health institutions.—The baseline tax system would not allow a deduction for 

personal expenditures including charitable contributions. In contrast, the Tax Code provides individuals and corporations a deduction 

for contributions to nonprofit health institutions. Tax expenditures resulting from the deductibility of contributions to other charitable 

institutions are listed under the education, training, employment, and social services function. 

133. Tax credit for orphan drug research.—The baseline tax system would not allow credits for particular activities, investments, 

or industries. In contrast, under current law drug firms can claim a tax credit of 50 percent of the costs for clinical testing required by 

the Food and Drug Administration for drugs that treat rare physical conditions or rare diseases. 

134. Special Blue Cross/Blue Shield tax benefits.—The baseline tax system generally would tax all profits under the regular tax 

rate schedule using broadly applicable measures of baseline income. It would not allow preferentially low tax rates to apply to certain 

types or sources of income. In contrast, Blue Cross and Blue Shield health insurance providers in existence on August 16, 1986 and 

certain other nonprofit health insurers are provided with special tax benefits, provided that their percentage of total premium revenue 

expended on reimbursement for clinical services provided to enrollees or for activities that improve health care quality is not less than 

85 percent for the taxable year. Qualifying insurers may take as a deduction 100 percent of any net increase in their unearned premium 

reserves, instead of the 80 percent allowed other insurers. Qualifying insurers are also allowed a special deduction equal to the amount 

by which 25 percent of an insurer’s health-claim expenses exceeds its beginning-of-the-year accounting surplus. The deduction is 

limited to the insurer’s taxable income determined without the special deduction.

135. Tax credit for health insurance purchased by certain displaced and retired individuals.—The baseline tax system would 

not allow credits for particular activities, investments, or industries. In contrast, the Tax Code provides a refundable tax credit of 72.5 

percent for the purchase of health insurance coverage by individuals eligible for Trade Adjustment Assistance and certain Pension 

Benefit Guarantee Corporation pension recipients. This provision will expire on December 31, 2019. 

136. Distributions from retirement plans for premiums for health and long-term care insurance.—Under the baseline tax 

system, all compensation, including dedicated and deferred payments, should be included in taxable income. In contrast, the Tax Code 

provides for tax-free distributions of up to $3,000 from governmental retirement plans for premiums for health and long term care 

premiums of public safety officers. 

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Income Security 

137. Child credit.—The baseline tax system would not allow credits for particular activities or targeted at specific groups. Under 

current law, however, taxpayers with children under age 17 can qualify for a $1,000 partially refundable per child credit. Any 

unclaimed credit due to insufficient tax liability may be refundable – taxpayers may claim a refund for 15 percent of earnings in 

excess of a $3,000 floor, up to the amount of unused credit. Alternatively, taxpayers with three or more children may claim a refund of 

the amount of payroll taxes paid in excess of the Earned Income Tax Credit received (up to the amount of unused credit) if this results 

in a larger refund. The credit is phased out for taxpayers at the rate of $50 per $1,000 of modified AGI above $110,000 ($75,000 for 

single or head of household filers and $55,000 for married taxpayers filing separately). 

138. Exclusion of railroad Social Security equivalent benefits.—Under the baseline tax system, all compensation, including 

dedicated and deferred payments, should be included in taxable income. In contrast, the Social Security Equivalent Benefit paid to 

railroad retirees is not generally subject to the income tax unless the recipient’s gross income reaches a certain threshold under current 

law. See provision number 158, Social Security benefits for retired workers, for discussion of the threshold. 

139. Exclusion of workers' compensation benefits.—Under the baseline tax system, all compensation, including dedicated 

payments and in-kind benefits, should be included in taxable income. However, workers compensation is not subject to the income tax 

under current law. 

140. Exclusion of public assistance benefits.—Under the reference law baseline tax system, gifts and transfers are not treated as 

income to the recipients. In contrast, the normal tax method considers cash transfers from the Government as part of the recipients’ 

income, and thus, treats the exclusion for public assistance benefits under current law as a tax expenditure. 

141. Exclusion of special benefits for disabled coal miners.—Under the baseline tax system, all compensation, including 

dedicated payments and in-kind benefits, should be included in taxable income. However, disability payments to former coal miners 

out of the Black Lung Trust Fund, although income to the recipient, are not subject to the income tax. 

142. Exclusion of military disability pensions.—Under the baseline tax system, all compensation, including dedicated payments 

and in-kind benefits, should be included in taxable income. In contrast, most of the military disability pension income received by 

current disabled military retirees is excluded from their income subject to tax. 

143. Defined benefit employer plans.—Under the baseline tax system, all compensation, including deferred and dedicated 

payments, should be included in taxable income. In addition, investment income would be taxed as earned. In contrast, under current 

law certain contributions to defined benefit pension plans are excluded from an employee’s gross income even though employers can 

deduct their contributions. In addition, the tax on the investment income earned by defined benefit pension plans is deferred until the 

money is withdrawn. 

144. Defined contribution employer plans.—Under the baseline tax system, all compensation, including deferred and dedicated 

payments, should be included in taxable income. In addition, investment income would be taxed as earned. In contrast, under current 

law individual taxpayers and employers can make tax-preferred contributions to employer-provided 401(k) and similar plans (e.g. 

403(b) plans and the Federal Government’s Thrift Savings Plan). In 2016, an employee could exclude up to $18,000 of wages from 

AGI under a qualified arrangement with an employer’s 401(k) plan. Employees age 50 or over could exclude up to $24,000 in 

contributions. The defined contribution plan limit, including both employee and employer contributions, is $53,000 in 2016. The tax 

on contributions made by both employees and employers and the investment income earned by these plans is deferred until 

withdrawn. 

145. Individual Retirement Accounts (IRAs).—Under the baseline tax system, all compensation, including deferred and dedicated 

payments, should be included in taxable income. In addition, investment income would be taxed as earned. In contrast, under current 

law individual taxpayers can take advantage of traditional and Roth IRAs to defer or otherwise reduce the tax on the return to their 

retirement savings. The IRA contribution limit is $5,500 in 2016; taxpayers age 50 or over are allowed to make additional “catch-up’’ 

contributions of $1,000. Contributions to a traditional IRA are generally deductible but the deduction is phased out for workers with 

incomes above certain levels who, or whose spouses, are active participants in an employer-provided retirement plan. Contributions 

and account earnings are includible in income when withdrawn from traditional IRAs. Roth IRA contributions are not deductible, but 

earnings and withdrawals are exempt from taxation. Income limits also apply to Roth IRA contributions. 

146. Low and moderate-income savers’ credit.—The baseline tax system would not allow credits for particular activities or 

targeted at specific groups. In contrast, the Tax Code provides an additional incentive for lower-income taxpayers to save through a 

nonrefundable credit of up to 50 percent on IRA and other retirement contributions of up to $2,000. This credit is in addition to any 

deduction or exclusion. The credit is completely phased out by $61,500 for joint filers, $46,125 for head of household filers, and 

$30,750 for other filers in 2016. 

147. Self-employed plans.—Under the baseline tax system, all compensation, including deferred and dedicated payments, should 

be included in taxable income. In addition, investment income would be taxed as earned. In contrast, under current law self-employed 

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individuals can make deductible contributions to their own retirement plans equal to 25 percent of their income, up to a maximum of 

$53,000 in 2016. Total plan contributions are limited to 25 percent of a firm’s total wages. The tax on the investment income earned 

by self-employed SEP, SIMPLE, and qualified plans is deferred until withdrawn. 

148. Premiums on group term life insurance.—Under the baseline tax system, all compensation, including deferred and 

dedicated payments, should be included in taxable income. In contrast, under current law employer-provided life insurance benefits 

are excluded from an employee’s gross income (to the extent that the employer’s share of the total costs does not exceed the cost of 

$50,000 of such insurance) even though the employer’s costs for the insurance are a deductible business expense. 

149. Premiums on accident and disability insurance.—Under the baseline tax system, all compensation, including dedicated 

payments and in-kind benefits, should be included in taxable income. In contrast, under current law employer-provided accident and 

disability benefits are excluded from an employee’s gross income even though the employer’s costs for the benefits are a deductible 

business expense. 

150. Exclusion of investment income from Supplementary Unemployment Benefit Trusts.—Under the baseline tax system, all 

compensation, including dedicated payments and in-kind benefits, should be included in taxable income. In addition, investment 

income would be taxed as earned. Under current law, employers may establish trusts to pay supplemental unemployment benefits to 

employees separated from employment. Investment income earned by such trusts is exempt from taxation. 

151. Exclusion of investment income from Voluntary Employee Benefit Associations trusts.—Under the baseline tax system, all 

compensation, including dedicated payments and in-kind benefits, should be included in taxable income. In addition, investment 

income would be taxed as earned. Under current law, employers may establish trusts to pay ...benefits to employees separated from 

employment. Investment income earned by such trusts is exempt from taxation. 

152. Special ESOP rules.—ESOPs are a special type of tax-exempt employee benefit plan. Under the baseline tax system, all 

compensation, including dedicated payments and in-kind benefits, should be included in taxable income. In addition, investment 

income would be taxed as earned. In contrast, employer-paid contributions (the value of stock issued to the ESOP) are deductible by 

the employer as part of employee compensation costs. They are not included in the employees’ gross income for tax purposes, 

however, until they are paid out as benefits. In addition, the following special income tax provisions for ESOPs are intended to 

increase ownership of corporations by their employees: (1) annual employer contributions are subject to less restrictive limitations 

than other qualified retirement plans; (2) ESOPs may borrow to purchase employer stock, guaranteed by their agreement with the 

employer that the debt will be serviced by his payment (deductible by him) of a portion of wages (excludable by the employees) to 

service the loan; (3) employees who sell appreciated company stock to the ESOP may defer any taxes due until they withdraw 

benefits; (4) dividends paid to ESOP-held stock are deductible by the employer; and (5) earnings are not taxed as they accrue. 

153. Additional deduction for the blind.—Under the baseline tax system, the standard deduction is allowed. An additional 

standard deduction for a targeted group within a given filing status would not be allowed. In contrast, the Tax Code allows taxpayers 

who are blind to claim an additional $1,550 standard deduction if single, or $1,250 if married in 2016. 

154. Additional deduction for the elderly.—Under the baseline tax system, the standard deduction is allowed. An additional 

standard deduction for a targeted group within a given filing status would not be allowed. In contrast, the Tax Code allows taxpayers 

who are 65 years or older to claim an additional $1,550 standard deduction if single, or $1,250 if married in 2016. 

155. Tax credit for the elderly and disabled.—Under the baseline tax system, a credit targeted at a specific group within a given 

filing status or for particular activities would not be allowed. In contrast, the Tax Code allows taxpayers who are 65 years of age or 

older, or who are permanently disabled, to claim a non-refundable tax credit equal to 15 percent of the sum of their earned and 

retirement income. The amount to which the 15-percent rate is applied is limited to no more than $5,000 for single individuals or 

married couples filing a joint return where only one spouse is 65 years of age or older or disabled, and up to $7,500 for joint returns 

where both spouses are 65 years of age or older or disabled. These limits are reduced by one-half of the taxpayer’s adjusted gross 

income over $7,500 for single individuals and $10,000 for married couples filing a joint return. 

156. Deductibility of casualty losses.—Under the baseline tax system, neither the purchase of property nor insurance premiums to 

protect the property's value are deductible as costs of earning income. Therefore, reimbursement for insured loss of such property is 

not included as a part of gross income, and uninsured losses are not deductible. In contrast, the Tax Code provides a deduction for 

uninsured casualty and theft losses of more than $100 each, to the extent that total losses during the year exceed 10 percent of the 

taxpayer’s adjusted gross income.

157. Earned income tax credit (EITC).—The baseline tax system would not allow credits for particular activities or targeted at 

specific groups. In contrast, the Tax Code provides an EITC to low-income workers at a maximum rate of 45 percent of income. For a 

family with one qualifying child, the credit is 34 percent of the first $9,920 of earned income in 2016. The credit is 40 percent of the 

first $13,930 of income for a family with two qualifying children, and it is 45 percent of the first $13,930 of income for a family with 

three or more qualifying children. Low-income workers with no qualifying children are eligible for a 7.65-percent credit on the first 

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$6,610 of earned income. The credit is phased out at income levels and rates which depend upon how many qualifying children are 

eligible and marital status. In 2016, the phase-down for married filers begins at incomes $5,550 greater than for otherwise similar 

unmarried filers. Earned income tax credits in excess of tax liabilities owed through the individual income tax system are refundable 

to individuals. 

Social Security 

158. Social Security benefits for retired and disabled workers and spouses, dependents and survivors.—The baseline tax system 

would tax Social Security benefits to the extent that contributions to Social Security were not previously taxed. Thus, the portion of 

Social Security benefits that is attributable to employer contributions and to earnings on employer and employee contributions (and 

not attributable to employee contributions which are taxed at the time of contribution) would be subject to tax. In contrast, the Tax 

Code may not tax all of the Social Security benefits that exceed the beneficiary’s contributions from previously taxed income. 

Actuarially, previously taxed contributions generally do not exceed 15 percent of benefits, even for retirees receiving the highest 

levels of benefits. Therefore, up to 85 percent of recipients’ Social Security and Railroad Social Security Equivalent retirement 

benefits are included in (phased into) the income tax base if the recipient’s provisional income exceeds certain base amounts. 

(Provisional income is equal to other items included in adjusted gross income plus foreign or U.S. possession income, tax-exempt 

interest, and one half of Social Security and Railroad Social Security Equivalent retirement benefits.) The untaxed portion of the 

benefits received by taxpayers who are below the income amounts at which 85 percent of the benefits are taxable is counted as a tax 

expenditure. Benefits paid to disabled workers and to spouses, dependents and survivors are treated in a similar manner. Railroad 

Social Security Equivalent benefits are treated like Social Security benefits. See also provision number 138, Exclusion of railroad 

Social Security equivalent benefits. 

159. Credit for certain employer social security contributions.—Under the baseline tax system, employer contributions to Social 

Security represent labor cost and are deductible expenses. Under current law, however, certain employers are allowed a tax credit, 

instead of a deduction, against taxes paid on tips received from customers in connection with the providing, delivering, or serving of 

food or beverages for consumption, The tip credit equals the full amount of the employer’s share of FICA taxes paid on the portion of 

tips, when added to the employee’s non-tip wages, in excess of $5.15 per hour. The credit is available only with respect to FICA taxes 

paid on tips. 

Veterans Benefits and Services 

160. Exclusion of veterans death benefits and disability compensation.—Under the baseline tax system, all compensation, 

including dedicated payments and in-kind benefits, should be included in taxable income because they represent accretions to wealth 

that do not materially differ from cash wages. In contrast, all compensation due to death or disability paid by the Veterans 

Administration is excluded from taxable income under current law. 

161. Exclusion of veterans pensions.—Under the baseline tax system, all compensation, including dedicated payments and inkind benefits, should be included in taxable income because they represent accretions to wealth that do not materially differ from cash 

wages. Under current law, however, pension payments made by the Veterans Administration are excluded from gross income. 

162. Exclusion of G.I. Bill benefits.—Under the baseline tax system, all compensation, including dedicated payments and in-kind 

benefits, should be included in taxable income because they represent accretions to wealth that do not materially differ from cash 

wages. Under current law, however, G.I. Bill benefits paid by the Veterans Administration are excluded from gross income. 

163. Exclusion of interest on veterans housing bonds.—The baseline tax system generally would tax all income under the regular 

tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income. In contrast, 

under current law, interest earned on general obligation bonds issued by State and local governments to finance housing for veterans is 

excluded from taxable income. 

General Government 

164. Exclusion of interest on public purpose State and local bonds.—The baseline tax system generally would tax all income 

under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of 

income. In contrast, under current law interest earned on State and local government bonds issued to finance public-purpose 

construction (e.g., schools, roads, sewers), equipment acquisition, and other public purposes is tax-exempt. Interest on bonds issued by 

Indian tribal governments for essential governmental purposes is also tax-exempt. 

165. Build America Bonds.—The baseline tax system would not allow credits for particular activities or targeted at specific 

group. In contrast, the Tax Code in 2009 allowed State and local governments to issue taxable bonds through 2010 and receive a direct 

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payment from Treasury equal to 35 percent of interest expenses. Alternatively, State and local governments could issue taxable bonds 

and the private lenders receive the 35-percent credit which is included in taxable income. 

166. Deductibility of nonbusiness State and local taxes other than on owner-occupied homes.—Under the baseline tax system, a 

deduction for personal consumption expenditures would not be allowed. In contrast, the Tax Code allows taxpayers who itemize their 

deductions to claim a deduction for State and local income taxes (or, at the taxpayer’s election, State and local sales taxes) and 

property taxes, even though these taxes primarily pay for services that, if purchased directly by taxpayers, would not be deductible. 

(The estimates for this tax expenditure do not include the estimates for the deductibility of State and local property tax on owneroccupied homes. See item 59.)

Interest 

167. Deferral of interest on U.S. savings bonds.—The baseline tax system would uniformly tax all returns to investments and not 

allow an exemption or deferral for particular activities, investments, or industries. In contrast, taxpayers may defer paying tax on 

interest earned on U.S. savings bonds until the bonds are redeemed. 

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2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-26

National Defense

1 Exclusion of benefits and allowances to armed forces personnel 12,280 12,650 11,460 11,500 11,860 12,320 12,820 13,370 13,940 14,560 15,210 129,690

International affairs: 

2 Exclusion of income earned abroad by U.S. citizens 6,280 6,600 6,930 7,280 7,640 8,020 8,420 8,840 9,290 9,750 10,240 83,010

3 Exclusion of certain allowances for Federal employees abroad 1,300 1,370 1,430 1,500 1,580 1,660 1,740 1,830 1,920 2,020 2,120 17,170

4 Inventory property sales source rules exception 4,270 4,630 5,020 5,440 5,900 6,400 6,940 7,530 8,170 8,860 9,610 68,500

5 Deferral of income from controlled foreign corporations (normal tax method) 102,100 107,200 112,560 118,190 124,100 130,310 136,820 143,660 150,850 158,390 166,310 1,348,390

6 Deferred taxes for financial firms on certain income earned overseas 15,320 16,080 16,880 17,730 18,620 19,550 20,520 21,550 22,630 23,760 24,950 202,270

General science, space, and technology: 

7 Expensing of research and experimentation expenditures (normal tax method) 7,190 7,110 7,660 8,680 9,640 10,430 11,130 11,770 12,470 13,220 14,020 106,130

8 Credit for increasing research activities 10,350 11,150 11,850 12,580 13,350 14,170 15,040 15,990 16,980 18,040 19,160 148,310

Energy: 

9 Expensing of exploration and development costs, fuels -450 -650 -290 -30 120 200 260 290 290 300 350 840

10 Excess of percentage over cost depletion, fuels 410 400 510 560 610 690 810 960 1,100 1,200 1,350 8,190

11 Exception from passive loss limitation for working interests in oil and gas properties 60 40 40 40 40 30 30 30 30 30 20 330

12 Capital gains treatment of royalties on coal 150 150 150 140 140 150 150 150 160 170 170 1,530

13 Exclusion of interest on energy facility bonds 10 20 20 10 20 30 30 30 30 30 30 250

14 Energy production credit 1/ 1,400 1,770 2,320 2,970 3,570 4,110 4,470 4,650 4,710 4,610 4,400 37,580

15 Marginal wells credit 0 70 70 30 0 0 0 0 0 0 0 170

16 Energy investment credit 1/ 1,190 2,440 3,450 3,830 3,920 3,720 2,950 2,000 1,150 550 290 24,300

17 Alcohol fuel credits 2/ 10 10 0 0 0 0 0 0 0 0 0 10

18 Bio-Diesel and small agri-biodiesel producer tax credits 3/ 30 20 0 0 0 0 0 0 0 0 0 20

19 Tax credits for clean-fuel burning vehicles and refueling property 480 550 660 650 480 410 360 270 200 190 210 3,980

20 Exclusion of utility conservation subsidies 430 450 470 490 520 540 570 590 620 650 680 5,580

21 Credit for holding clean renewable energy bonds 4/ 70 70 70 70 70 70 70 70 70 70 70 700

22 Deferral of gain from dispositions of transmission property to implement FERC restructuring p 60 -190 -270 -210 -190 -150 -120 -70 -20 0 0 -1,220

23 Credit for investment in clean coal facilities 160 400 440 230 30 -20 -20 -20 -10 -10 0 1,020

24 Temporary 50% expensing for equipment used in the refining of liquid fuels -1,760 -1,380 -1,140 -930 -740 -560 -370 -180 -40 0 0 -5,340

25 Natural gas distribution pipelines treated as 15-year property 140 140 150 150 150 120 60 -20 -100 -190 -270 190

26 Amortize all geological and geophysical expenditures over 2 years 70 60 60 60 70 80 90 70 60 40 40 630

27 Allowance of deduction for certain energy efficient commercial building property 80 10 -30 -30 -30 -30 -30 -30 -30 -30 -30 -260

28 Credit for construction of new energy efficient homes 210 170 70 30 10 0 0 0 0 0 0 280

29 Credit for energy efficiency improvements to existing homes 530 290 0 0 0 0 0 0 0 0 0 290

30 Credit for residential energy efficient property 1,450 1,460 1,500 1,550 1,470 1,270 640 150 20 0 0 8,060

31 Qualified energy conservation bonds 5/ 30 30 30 30 30 30 30 30 30 30 30 300

32 Advanced Energy Property Credit 10 -30 -30 -30 -10 0 0 0 0 0 0 -100

33 Advanced nuclear power production credit 0 0 0 170 440 550 550 550 550 550 550 3,910

34 Reduced tax rate for nuclear decommissioning funds 160 190 220 240 250 270 280 290 300 320 330 2,690

Natural resources and environment: 

35 Expensing of exploration and development costs, nonfuel minerals 20 40 40 50 50 50 50 50 50 50 50 480

36 Excess of percentage over cost depletion, nonfuel minerals 430 420 430 440 440 440 430 430 420 410 390 4,250

37 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities 420 450 470 500 540 610 670 700 740 780 800 6,260

38 Capital gains treatment of certain timber income 150 150 150 140 140 150 150 150 160 170 170 1,530

39 Expensing of multiperiod timber growing costs 330 340 360 380 390 420 420 430 430 440 440 4,050

40 Tax incentives for preservation of historic structures 460 470 470 480 490 510 520 530 540 540 550 5,100

41 Industrial CO2 capture and sequestration tax credit 110 150 180 80 0 0 0 0 0 0 0 410

42 Deduction for endangered species recovery expenditures 30 30 30 30 40 50 50 50 50 70 70 470

Agriculture: 

43 Expensing of certain capital outlays 210 230 240 250 270 280 290 310 330 350 360 2,910

44 Expensing of certain multiperiod production costs 370 390 410 440 460 490 520 550 590 630 660 5,140

45 Treatment of loans forgiven for solvent farmers 40 50 50 50 50 50 60 60 60 60 70 560

46 Capital gains treatment of certain income 1,470 1,480 1,450 1,440 1,440 1,460 1,500 1,540 1,600 1,670 1,740 15,320

47 Income averaging for farmers 140 150 160 170 180 180 190 200 210 220 230 1,890

48 Deferral of gain on sale of farm refiners 20 20 20 20 20 20 30 30 30 30 30 250

49 Expensing of reforestation expenditures 60 60 60 60 70 80 80 80 80 90 90 750

Table 1. ESTIMATES OF TOTAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026

(in millions of dollars)

Total from corporations and individuals

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September 28, 2016
Commerce and housing: 

Financial institutions and insurance: 

50 Exemption of credit union income 2,310 2,710 3,080 3,260 3,350 3,600 3,770 3,530 3,850 4,100 4,060 35,310

51 Exclusion and deferral of policyholder income earned on life insurance and annuity contra 13,980 17,920 24,360 29,110 32,410 34,770 36,520 37,920 39,130 40,290 41,280 333,710

52 Exclusion or special alternative tax for small property and casualty insurance companies 50 50 50 60 60 60 60 70 70 70 80 630

53 Tax exemption of insurance income earned by tax-exempt organizations 690 720 740 780 830 870 890 910 930 950 970 8,590

54 Small life insurance company deduction 40 40 40 40 40 40 50 50 50 50 50 450

55 Exclusion of interest spread of financial institutions 470 500 510 530 550 570 580 590 600 610 620 5,660

Housing: 

56 Exclusion of interest on owner-occupied mortgage subsidy bonds 1,200 1,270 1,330 1,390 1,530 1,730 1,860 1,990 2,090 2,170 2,250 17,610

57 Exclusion of interest on rental housing bonds 1,030 1,100 1,150 1,200 1,320 1,490 1,600 1,710 1,800 1,870 1,940 15,180

58 Deductibility of mortgage interest on owner-occupied homes 61,190 64,110 68,090 73,590 79,990 86,570 93,030 99,300 105,110 110,480 115,650 895,920

59 Deductibility of State and local property tax on owner-occupied homes 34,470 36,540 38,940 41,590 44,410 47,170 49,930 52,770 55,670 58,560 61,280 486,860

60 Deferral of income from installment sales 1,620 1,630 1,620 1,620 1,630 1,660 1,700 1,750 1,820 1,890 1,970 17,290

61 Capital gains exclusion on home sales 43,310 46,130 48,470 50,920 53,500 56,200 59,050 62,040 65,180 68,470 71,940 581,900

62 Exclusion of net imputed rental income 105,610 109,620 112,670 114,740 116,270 119,520 122,870 126,310 129,850 133,480 137,220 1,222,550

63 Exception from passive loss rules for $25,000 of rental loss 7,120 7,480 7,800 8,080 8,290 8,490 8,670 8,820 8,980 9,250 9,370 85,230

64 Credit for low-income housing investments 8,630 8,740 8,850 8,950 9,090 9,280 9,490 9,730 10,010 10,290 10,200 94,630

65 Accelerated depreciation on rental housing (normal tax method) 1,610 2,200 2,920 3,660 4,440 5,290 6,170 6,930 7,660 8,360 9,060 56,690

66 Discharge of mortgage indebtedness 3,340 1,090 0 0 0 0 0 0 0 0 0 1,090

Commerce: 

67 Discharge of business indebtedness -150 -50 10 10 10 20 30 40 50 50 50 220

68 Exceptions from imputed interest rules 50 50 60 60 60 70 70 80 80 80 90 700

69 Treatment of qualified dividends 27,980 28,810 29,850 30,940 32,100 33,370 34,720 36,160 37,690 39,290 40,990 343,920

70 Capital gains (except agriculture, timber, iron ore, and coal) 109,530 110,270 108,560 107,620 107,780 109,210 111,760 115,240 119,500 124,450 129,800 1,144,190

71 Capital gains exclusion of small corporation stock 540 700 850 1,050 1,210 1,320 1,420 1,520 1,600 1,660 1,710 13,040

72 Step-up basis of capital gains at death 49,990 51,990 54,070 56,230 58,480 60,820 63,250 65,780 68,420 71,150 74,000 624,190

73 Carryover basis of capital gains on gifts 7,790 7,520 7,180 6,960 6,890 6,960 7,020 7,060 7,140 7,260 7,410 71,400

74 Ordinary income treatment of loss from small business corporation stock sale 50 50 50 50 50 50 50 50 50 50 50 500

75 Deferral of gains from like-kind exchanges 7,330 7,690 8,080 8,500 8,920 9,360 9,830 10,320 10,840 11,380 11,940 96,860

76 Depreciation of buildings other than rental housing (normal tax method) -8,830 -9,000 -9,390 -10,010 -10,750 -11,420 -12,090 -12,750 -13,490 -13,950 -14,360 -117,210

77 Accelerated depreciation of machinery and equipment (normal tax method) 44,630 47,080 50,320 52,420 -11,620 -20,710 -830 11,810 23,160 32,860 40,480 224,970

78 Expensing of certain small investments (normal tax method) 3,920 3,580 3,660 3,840 7,730 8,350 7,470 7,210 7,140 7,250 7,570 63,800

79 Graduated corporation income tax rate (normal tax method) 3,300 3,000 2,650 2,460 2,370 2,360 2,380 2,380 2,380 2,410 2,250 24,640

80 Exclusion of interest on small issue bonds 150 160 170 170 190 220 240 260 270 280 280 2,240

81 Deduction for US production activities 15,860 16,420 17,160 17,900 18,650 19,440 20,250 21,110 21,990 22,910 23,880 199,710

82 Special rules for certain film and TV production 280 200 110 60 30 0 0 0 0 0 0 400

Transportation: 

83 Tonnage tax 70 80 80 90 90 90 100 100 110 110 120 970

84 Deferral of tax on shipping companies 20 20 20 20 20 20 20 20 20 20 20 200

85 Exclusion of reimbursed employee parking expenses 2,940 3,060 3,170 3,280 3,410 3,520 3,610 3,750 3,850 4,020 4,160 35,830

86 Exclusion for employer-provided transit passes 1,010 1,080 1,140 1,210 1,290 1,370 1,440 1,520 1,600 1,630 1,690 13,970

87 Tax credit for certain expenditures for maintaining railroad tracks 140 60 0 0 0 0 0 0 0 0 0 60

88 Exclusion of interest on bonds for Highway Projects and rail-truck transfer facilities 210 200 190 170 170 160 160 140 140 130 130 1,590

Community and regional development: 

89 Investment credit for rehabilitation of structures (other than historic) 20 20 20 20 20 20 20 20 20 20 20 200

90 Exclusion of interest for airport, dock, and similar bonds 680 720 750 790 870 980 1,060 1,120 1,190 1,230 1,280 9,990

91 Exemption of certain mutuals' and cooperatives' income 140 150 150 150 150 160 160 160 170 170 180 1,600

92 Empowerment zones 140 110 50 30 30 10 10 10 0 0 0 250

93 New markets tax credit 1,290 1,300 1,200 1,050 980 890 760 610 440 280 90 7,600

94 Credit to holders of Gulf Tax Credit Bonds. 230 240 250 260 300 320 350 380 400 420 430 3,350

95 Recovery Zone Bonds 6/ 130 130 140 140 160 180 190 210 220 230 240 1,840

96 Tribal Economic Development Bonds 40 40 40 40 50 50 60 60 70 70 70 550

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September 28, 2016
Education, training, employment, and social services: 

Education: 

97 Exclusion of scholarship and fellowship income (normal tax method) 3,290 3,410 3,500 3,560 3,690 3,820 3,960 4,100 4,240 4,400 4,550 39,230

98 Tax credits and deductions for postsecondary education expenses 7/ 15,530 15,620 15,450 15,590 15,720 15,730 15,720 15,720 15,690 15,630 15,520 156,390

99 Education Individual Retirement Accounts 30 40 40 40 40 40 40 50 50 50 50 440

100 Deductibility of student-loan interest 1,950 1,970 2,010 2,050 2,130 2,150 2,200 2,270 2,290 2,330 2,410 21,810

101 Qualified tuition programs 1,740 1,920 2,110 2,300 2,490 2,700 2,910 3,140 3,390 3,650 3,930 28,540

102 Exclusion of interest on student-loan bonds 440 460 480 500 560 620 680 730 760 790 820 6,400

103 Exclusion of interest on bonds for private nonprofit educational facilities 2,260 2,380 2,490 2,600 2,870 3,230 3,490 3,730 3,920 4,080 4,220 33,010

104 Credit for holders of zone academy bonds 8/ 160 170 180 170 150 130 110 90 80 60 50 1,190

105 Exclusion of interest on savings bonds redeemed to finance educational expenses 30 30 30 30 30 40 40 40 40 50 50 380

106 Parental personal exemption for students age 19 or over 4,220 4,210 4,310 4,470 4,600 4,720 4,830 4,940 5,030 5,100 5,180 47,390

107 Deductibility of charitable contributions (education) 5,110 5,480 5,890 6,330 6,730 7,100 7,490 7,860 8,250 8,630 9,000 72,760

108 Exclusion of employer-provided educational assistance 850 900 950 990 1,040 1,090 1,140 1,200 1,260 1,320 1,380 11,270

109 Special deduction for teacher expenses 210 210 210 210 220 220 260 270 270 270 270 2,410

110 Discharge of student loan indebtedness 90 100 100 100 110 110 110 110 120 120 120 1,100

111 Qualified school construction bonds 9/ 650 650 650 650 650 650 650 650 650 650 650 6,500

Training, employment, and social services: 

112 Work opportunity tax credit 1,160 1,310 1,350 1,390 1,010 480 300 230 170 130 100 6,470

113 Employer provided child care exclusion 950 1,000 1,060 1,140 1,200 1,280 1,350 1,440 1,530 1,620 1,710 13,330

114 Employer-provided child care credit 10 10 10 10 10 10 10 10 10 10 10 100

115 Assistance for adopted foster children 560 580 610 650 680 720 760 800 840 890 930 7,460

116 Adoption credit and exclusion 300 310 320 340 360 350 370 360 370 370 380 3,530

117 Exclusion of employee meals and lodging (other than military) 4,540 4,650 4,770 4,910 5,040 5,170 5,300 5,430 5,560 5,700 5,830 52,360

118 Credit for child and dependent care expenses 4,570 4,600 4,710 4,860 4,990 5,090 5,200 5,300 5,420 5,530 5,650 51,350

119 Credit for disabled access expenditures 10 10 10 10 10 10 10 10 10 10 10 100

120 Deductibility of charitable contributions, other than education and health 44,070 47,450 51,180 55,030 58,590 61,930 65,250 68,510 71,820 75,090 78,270 633,120

121 Exclusion of certain foster care payments 450 480 500 520 540 560 580 600 610 630 650 5,670

122 Exclusion of parsonage allowances 940 990 1,040 1,090 1,150 1,210 1,280 1,340 1,410 1,490 1,570 12,570

123 Indian employment credit 50 40 20 20 20 20 10 10 10 10 10 170

124 Credit for employer differential wage payments 0 0 0 10 10 10 20 20 20 20 20 130

Health: 

125 Exclusion of employer contributions for medical insurance premiums and medical care 10/ 210,190 222,030 235,830 250,760 265,170 280,990 297,880 315,770 334,890 355,060 376,330 2,934,710

126 Self-employed medical insurance premiums 7,170 7,590 7,960 8,320 8,870 9,410 9,880 10,350 10,830 11,350 11,920 96,480

127 Medical Savings Accounts / Health Savings Accounts 5,730 6,850 8,160 9,720 11,570 13,770 16,410 19,530 23,230 27,650 32,920 169,810

128 Deductibility of medical expenses 7,970 8,680 9,920 11,550 13,450 15,610 17,970 20,850 24,250 27,790 32,090 182,160

129 Exclusion of interest on hospital construction bonds 3,480 3,670 3,840 4,010 4,430 4,990 5,370 5,740 6,040 6,290 6,510 50,890

130 Refundable Premium Assistance Tax Credit 11/ 2,070 2,410 3,170 3,810 4,620 5,700 6,010 6,170 6,500 6,710 6,900 52,000

131 Credit for employee health insurance expenses of small business 12/ 160 160 170 150 140 100 120 90 60 30 20 1,040

132 Deductibility of charitable contributions (health) 4,980 5,360 5,780 6,220 6,620 7,000 7,380 7,740 8,110 8,490 8,850 71,550

133 Tax credit for orphan drug research 1,720 2,060 2,480 2,970 3,570 4,280 5,130 6,160 7,390 8,880 10,650 53,570

134 Special Blue Cross/Blue Shield tax benefits 630 610 610 610 600 590 570 540 510 460 400 5,500

135 Tax credit for health insurance purchased by certain displaced and retired individuals 13/ 30 30 20 10 0 0 0 0 0 0 0 60

136 Distributions from retirement plans for premiums for health and long-term care insurance 440 460 480 500 520 540 560 580 600 620 650 5,510

Income security: 

137 Child credit 14/ 24,180 24,460 24,710 24,710 24,520 24,140 23,750 23,300 22,820 22,330 21,840 236,580

138 Exclusion of railroad retirement (Social Security equivalent) benefits 300 310 310 300 290 270 260 240 220 200 180 2,580

139 Exclusion of workers' compensation benefits 10,030 10,100 10,170 10,240 10,320 10,390 10,460 10,530 10,610 10,680 10,760 104,260

140 Exclusion of public assistance benefits (normal tax method) 570 590 600 620 640 670 680 700 730 740 690 6,660

141 Exclusion of special benefits for disabled coal miners 30 20 20 20 20 10 10 10 10 10 10 140

142 Exclusion of military disability pensions 230 240 250 260 270 290 300 310 330 340 360 2,950

Net exclusion of pension contributions and earnings: 

143 Defined benefit employer plans 70,400 70,690 70,980 70,970 69,880 68,360 66,180 63,730 61,360 58,340 54,710 655,200

144 Defined contribution employer plans 61,770 64,610 69,420 76,450 81,250 89,270 95,350 112,370 117,620 122,660 129,460 958,460

145 Individual Retirement Accounts 16,410 17,900 19,170 20,680 22,310 23,970 25,200 26,560 26,550 26,720 26,800 235,860

146 Low and moderate income savers credit 1,270 1,240 1,260 1,270 1,290 1,320 1,330 1,350 1,350 1,360 1,380 13,150

147 Self-Employed plans 28,050 30,820 33,780 37,050 40,500 44,040 47,890 52,080 56,640 61,590 66,980 471,370

Exclusion of other employee benefits: 

148 Premiums on group term life insurance 2,460 2,580 2,680 2,780 2,880 2,980 3,080 3,190 3,310 3,430 3,550 30,460

149 Premiums on accident and disability insurance 320 320 330 330 330 340 340 340 350 350 350 3,380

150 Income of trusts to finance supplementary unemployment benefits 20 20 30 40 40 40 50 50 50 50 50 420

151 Income of trusts to finance voluntary employee benefits associations 1,110 1,170 1,220 1,280 1,340 1,400 1,470 1,540 1,610 1,690 1,770 14,490

152 Special ESOP rules 2,030 2,090 2,150 2,210 2,290 2,350 2,430 2,510 2,580 2,670 2,750 24,030

153 Additional deduction for the blind 40 40 40 40 50 50 50 60 60 70 80 540

154 Additional deduction for the elderly 2,940 3,110 3,350 3,560 3,800 4,000 4,260 4,600 4,900 5,250 5,620 42,450

155 Tax credit for the elderly and disabled 10 10 10 10 10 10 10 0 0 0 0 60

156 Deductibility of casualty losses 370 390 400 410 420 440 450 460 470 480 490 4,410

157 Earned income tax credit 15/ 1,550 1,760 1,820 3,780 3,890 2,080 2,200 2,330 2,430 2,560 2,660 25,510

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Social Security: 

Exclusion of social security benefits: 

158 Social Security benefits for retired and disabled workers and spouses, dependents and su 36,140 38,440 40,580 42,920 44,850 46,530 48,140 49,700 51,380 53,260 55,330 471,130

159 Credit for certain employer contributions to social security 1,000 1,030 1,080 1,120 1,170 1,220 1,270 1,330 1,380 1,440 1,500 12,540

Veterans benefits and services: 

160 Exclusion of veterans death benefits and disability compensation 6,770 7,290 7,720 7,980 8,250 8,520 8,780 9,060 9,340 9,630 9,930 86,500

161 Exclusion of veterans pensions 440 470 500 520 540 560 590 610 630 650 680 5,750

162 Exclusion of GI bill benefits 1,550 1,690 1,790 1,880 1,960 2,050 2,140 2,240 2,340 2,440 2,550 21,080

163 Exclusion of interest on veterans housing bonds 10 10 10 10 10 10 10 10 20 20 20 130

General purpose fiscal assistance: 

164 Exclusion of interest on public purpose State and local bonds 28,890 30,500 31,910 33,350 36,780 41,420 44,640 47,700 50,180 52,250 54,050 422,780

165 Build America Bonds 16/ 0 0 0 0 0 0 0 0 0 0 0 0

166 Deductibility of nonbusiness State and local taxes other than on owner-occupied homes 56,230 59,750 63,340 67,230 71,710 75,950 80,170 84,600 89,100 93,590 97,830 783,270

Interest: 

167 Deferral of interest on U.S. savings bonds 980 970 960 950 940 940 930 920 910 900 890 9,310

Addendum: Aid to State and local governments: 

Deductibility of: 

Property taxes on owner-occupied homes 34,470 36,540 38,940 41,590 44,410 47,170 49,930 52,770 55,670 58,560 61,280 486,860

56,230 59,750 63,340 67,230 71,710 75,950 80,170 84,600 89,100 93,590 97,830 783,270

Exclusion of interest on State and local bonds for: 

Public purposes 28,890 30,500 31,910 33,350 36,780 41,420 44,640 47,700 50,180 52,250 54,050 422,780

Energy facilities 10 20 20 10 20 30 30 30 30 30 30 250

420 450 470 500 540 610 670 700 740 780 800 6,260

Small-issues 150 160 170 170 190 220 240 260 270 280 280 2,240

Owner-occupied mortgage subsidies 1,200 1,270 1,330 1,390 1,530 1,730 1,860 1,990 2,090 2,170 2,250 17,610

Rental housing 1,030 1,100 1,150 1,200 1,320 1,490 1,600 1,710 1,800 1,870 1,940 15,180

Airports, docks, and similar facilities 680 720 750 790 870 980 1,060 1,120 1,190 1,230 1,280 9,990

Student loans 440 460 480 500 560 620 680 730 760 790 820 6,400

Private nonprofit educational facilities 2,260 2,380 2,490 2,600 2,870 3,230 3,490 3,730 3,920 4,080 4,220 33,010

Hospital construction 3,480 3,670 3,840 4,010 4,430 4,990 5,370 5,740 6,040 6,290 6,510 50,890

Veterans' housing 10 10 10 10 10 10 10 10 20 20 20 130

1/

2/ The alternative fuel mixture credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2016 $590; 2017 $290 and $0 thereafter.

3/ In addition, the biodiesel producer tax credit results in a reduction in excise tax receipts (in millions of dollars) as follows: 2016 $2,650; 2017 $2,810 and $0 thereafter.

4/ In addition, the credit for holding clean renewable energy bonds has outlay effects of (in millions of dollars):

2016 $30; 2017 $30; 2018 $30; 2019 $30; 2020 $30; 2021 $30; 2022 $30; 2023 $30; 2024 $30; 2025, $30; and 2026 $30.

5/ In addition, the qualified energy conservation bonds have outlay effects of (in millions of dollars):

2016 $40; 2017 $40; 2018 $40; 2019 $40; 2020 $40; 2021 $40; 2022 $40; 2023 $40; 2024 $40; 2025, $40; and 2026 $40.

6/ In addition, recovery zone bonds have outlay effects (in millions of dollars) as follows:

2016 $220; 2017 $220; 2018 $220; 2019 $220; 2020 $220; 2021 $220; 2022 $220; 2023 $220; 2024 $220; 2025, $220; and 2026 $220.

7/ In addition, the tax credits and deductions for postsecondary education expenses have outlay effects of (in millions of dollars):

2016 $4,630; 2017 $4,530; 2018 $4,570; 2019 $4,630; 2020 $4,660; 2021 $4,710; 2022 $4,760; 2023 $4,800; 2024 $4,840; 2025 $4,860; and 2026 $4,870

8/ In addition, the credit for holders of zone academy bonds has outlay effects of (in millions of dollars):

2016 $60; 2017 $60; 2018 $60; 2019 $60; 2020 $60; 2021 $60; 2022 $60; 2023 $60; 2024 $60; 2025 $60; and 2026 $60.

9/ In addition, the provision for school construction bonds has outlay effects of (in millions of dollars):

2016 $680; 2017 $730; 2018 $730; 2019 $730; 2020 $730; 2021 $730; 2022 $730; 2023 $730; 2024 $730; 2025 $730; and 2026 $730.

10/ In addition, the employer contributions for health have effects on payroll tax receipts (in millions of dollars) as follows: 2016 $130,380; 2017 $136,600; 2018 $144,110;

11/ In addition, the premium assistance credit provision has outlay effects (in millions of dollars) as follows:

2016 $24,230; 2017 $32,240; 2018 $40,620; 2019 $51,220; 2020 $64,670; 2021 $70,140; 2022 $74,150; 2023 $77,420; 2024 $81,060; 2025 $84,670; and 2026 $88,980. 

12/ In addition, the small business credit provision has outlay effects (in millions of dollars) as follows:

2016 $30; 2017 $30; 2018 $30; 2019 $30; 2020 $30; 2021 $20; 2022 $20; 2023 $20; 2024 $10; 2025 $10; and 2026 $0. 

13/ In addition, the effect of the health coverage tax credit on receipts has outlay effects of (in millions of dollars)

2016 $10; 2017 $20; 2018 $30; 2019 $30; 2020 $10; and $0 thereafter.

14/ In addition, the effect of the child tax credit on receipts has outlay effects of (in millions of dollars):

2016 $29,990; 2017 $29,980; 2018 $29,620; 2019 $ 29,300; 2020 $29,100; 2021 $29,270; 2022 $29,360; 2023 $29,560 2024 $29,630; 2025 $29,720; and 2026 $29,800.

15/ In addition, the earned income tax credit on receipts has outlay effects of (in millions of dollars):

2016 $62,150; 2017 $62,070; 2018 $61,770; 2019 $ 60,130; 2020 $60,540; 2021 $63,880; 2022 $65,310; 2023 $67,020; 2024 $68,560; 2025 $70,080; and 2026 $71,560.

16/ In addition, the Build America Bonds have outlay effects of (in millions of dollars):

2016 $3,350; 2017 $3,610; 2018 $3,610, 2019 $3,610; 2020 $3,610; 2021 $3,610; 2022 $3,610; 2023 $3,610; 2024 $3,610; 2025, $3,610; and 2026 $3,610.

Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method.

All estimates have been rounded to the nearest $10 million. Provisions with estimates that rounded to zero in each year are not included in the table.

2019 $151,860; 2020 $158,700; 2021 $166,540; 2022 $175,190; 2023 $184,390; 2024 $194,210; 2025 $204,590; and 2026 $215,340. 

Firms can take an energy grant in lieu of the energy production credit or the energy investment credit for facilities whose construction began in 2009, 2010, or 2011. The effect of the grant on outlays (in millions of 

dollars) is as follows: 2016 $750; 2017 $500; and $0 thereafter.

Water, sewage, and hazardous waste disposal facilities 

Nonbusiness State and local taxes other than on owner-occupied homes 

25

U.S. Department of the Treasury

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September 28, 2016
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-26

National Defense

1 Exclusion of benefits and allowances to armed forces personnel 

International affairs: 

2 Exclusion of income earned abroad by U.S. citizens 

3 Exclusion of certain allowances for Federal employees abroad

4 Inventory property sales source rules exception 4,270 4,630 5,020 5,440 5,900 6,400 6,940 7,530 8,170 8,860 9,610 68,500

5 Deferral of income from controlled foreign corporations 102,100 107,200 112,560 118,190 124,100 130,310 136,820 143,660 150,850 158,390 166,310 1,348,390

6 Deferred taxes for financial firms on certain income ear 15,320 16,080 16,880 17,730 18,620 19,550 20,520 21,550 22,630 23,760 24,950 202,270

General science, space, and technology: 

7 Expensing of research and experimentation expenditur 6,350 6,300 6,910 7,930 8,800 9,520 10,150 10,740 11,370 12,060 12,790 96,570

8 Credit for increasing research activities 9,580 10,230 10,840 11,500 12,190 12,920 13,700 14,540 15,420 16,360 17,350 135,050

Energy: 

9 Expensing of exploration and development costs, fuels -320 -470 -210 -20 90 150 190 210 210 220 260 630

10 Excess of percentage over cost depletion, fuels 330 320 410 450 490 550 650 770 880 960 1,080 6,560

11 Exception from passive loss limitation for working inter 0 0 0 0 0 0 0 0 0 0 0 0

12 Capital gains treatment of royalties on coal 0 0 0 0 0 0 0 0 0 0 0 0

13 Exclusion of interest on energy facility bonds 0 10 10 0 0 10 10 10 10 0 0 60

14 Energy production credit 1/ 1,050 1,330 1,740 2,230 2,680 3,080 3,350 3,490 3,530 3,460 3,300 28,190

15 Marginal wells credit 0 20 20 10 0 0 0 0 0 0 0

16 Energy investment credit 1/ 890 1,830 2,590 2,870 2,940 2,790 2,210 1,500 860 410 220 18,220

17 Alcohol fuel credits 2/ 0 0 0 0 0 0 0 0 0 0 0 0

18 Bio-Diesel and small agri-biodiesel producer tax credits 20 10 0 0 0 0 0 0 0 0 0 10

19 Tax credits for clean-fuel burning vehicles and refueling 130 150 170 130 90 80 60 40 30 40 50 840

20 Exclusion of utility conservation subsidies 30 30 30 30 30 30 30 30 30 30 30 300

21 Credit for holding clean renewable energy bonds 4/ 20 20 20 20 20 20 20 20 20 20 20 200

22 Deferral of gain from dispositions of transmission prope 60 -190 -270 -210 -190 -150 -120 -70 -20 0 0 -1,220

23 Credit for investment in clean coal facilities 140 360 400 210 30 -20 -20 -20 -10 -10 0 920

24 Temporary 50% expensing for equipment used in the re -1,760 -1,380 -1,140 -930 -740 -560 -370 -180 -40 0 0 -5,340

25 Natural gas distribution pipelines treated as 15-year pro 140 140 150 150 150 120 60 -20 -100 -190 -270 190

26 Amortize all geological and geophysical expenditures o 50 40 40 40 50 60 60 50 40 30 30 440

27 Allowance of deduction for certain energy efficient com 20 0 -10 -10 -10 -10 -10 -10 -10 -10 -10 -90

28 Credit for construction of new energy efficient homes 50 50 20 10 0 0 0 0 0 0 0 80

29 Credit for energy efficiency improvements to existing ho 0 0 0 0 0 0 0 0 0 0 0 0

30 Credit for residential energy efficient property 0 0 0 0 0 0 0 0 0 0 0 0

31 Qualified energy conservation bonds 5/ 10 10 10 10 10 10 10 10 10 10 10 100

32 Advanced Energy Property Credit 10 -20 -20 -20 -10 0 0 0 0 0 0 -70

33 Advanced nuclear power production credit 0 0 0 170 440 550 550 550 550 550 550 3,910

34 Reduced tax rate for nuclear decommissioning funds 160 190 220 240 250 270 280 290 300 320 330 2,690

Natural resources and environment: 

35 Expensing of exploration and development costs, nonfu 20 40 40 50 50 50 50 50 50 50 50 480

36 Excess of percentage over cost depletion, nonfuel mine 410 400 410 420 420 420 410 410 400 390 370 4,050

37 Exclusion of interest on bonds for water, sewage, and h 120 130 130 120 120 140 140 130 130 130 120 1,290

38 Capital gains treatment of certain timber income 0 0 0 0 0 0 0 0 0 0 0 0

39 Expensing of multiperiod timber growing costs 200 210 230 240 250 260 260 270 270 280 280 2,550

40 Tax incentives for preservation of historic structures 390 400 400 410 420 430 440 450 460 460 470 4,340

41 Industrial CO2 capture and sequestration tax credit 110 150 180 80 0 0 0 0 0 0 0 410

42 Deduction for endangered species recovery expenditur 10 10 10 10 20 20 20 20 20 30 30 190

Total from corporations

Table 2a. ESTIMATES OF TOTAL CORPORATE INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026

(in millions of dollars)

26

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
Agriculture: 

43 Expensing of certain capital outlays 10 20 20 20 20 20 20 20 30 30 30 230

44 Expensing of certain multiperiod production costs 20 30 30 30 30 40 40 40 50 50 50 390

45 Treatment of loans forgiven for solvent farmers 0 0 0 0 0 0 0 0 0 0 0 0

46 Capital gains treatment of certain income 0 0 0 0 0 0 0 0 0 0 0 0

47 Income averaging for farmers 0 0 0 0 0 0 0 0 0 0 0 0

48 Deferral of gain on sale of farm refiners 20 20 20 20 20 20 30 30 30 30 30 250

49 Expensing of reforestation expenditures 20 20 20 20 30 30 30 30 30 30 30 270

Commerce and housing: 

Financial institutions and insurance: 

50 Exemption of credit union income 2,310 2,710 3,080 3,260 3,350 3,600 3,770 3,530 3,850 4,100 4,060 35,310

51 Exclusion and deferral of policyholder income earne 1,470 1,740 2,140 2,470 2,730 2,960 3,160 3,360 3,550 3,740 3,930 29,780

52 Exclusion or special alternative tax for small proper 50 50 50 60 60 60 60 70 70 70 80 630

53 Tax exemption of insurance income earned by tax-e 690 720 740 780 830 870 890 910 930 950 970 8,590

54 Small life insurance company deduction 40 40 40 40 40 40 50 50 50 50 50 450

55 Exclusion of interest spread of financial institutions 0 0 0 0 0 0 0 0 0 0 0 0

Housing: 

56 Exclusion of interest on owner-occupied mortgage s 350 380 370 330 350 390 380 380 360 350 350 3,640

57 Exclusion of interest on rental housing bonds 300 330 320 290 300 340 330 320 310 300 300 3,140

58 Deductibility of mortgage interest on owner-occupie 0 0 0 0 0 0 0 0 0 0 0 0

59 Deductibility of State and local property tax on owne 0 0 0 0 0 0 0 0 0 0 0 0

60 Deferral of income from installment sales 0 0 0 0 0 0 0 0 0 0 0 0

61 Capital gains exclusion on home sales 0 0 0 0 0 0 0 0 0 0 0 0

62 Exclusion of net imputed rental income 0 0 0 0 0 0 0 0 0 0 0 0

63 Exception from passive loss rules for $25,000 of ren 0 0 0 0 0 0 0 0 0 0 0 0

64 Credit for low-income housing investments 8,200 8,300 8,410 8,500 8,640 8,820 9,020 9,240 9,510 9,780 9,690 89,910

65 Accelerated depreciation on rental housing (normal 260 370 500 630 770 920 1,070 1,200 1,320 1,430 1,540 9,750

66 Discharge of mortgage indebtedness 0

Commerce: 

67 Discharge of business indebtedness 0 0 0 0 0 0 0 0 0 0 0 0

68 Exceptions from imputed interest rules 0 0 0 0 0 0 0 0 0 0 0 0

69 Treatment of qualified dividends 0 0 0 0 0 0 0 0 0 0 0 0

70 Capital gains (except agriculture, timber, iron ore, a 0 0 0 0 0 0 0 0 0 0 0 0

71 Capital gains exclusion of small corporation stock 0 0 0 0 0 0 0 0 0 0 0 0

72 Step-up basis of capital gains at death 0 0 0 0 0 0 0 0 0 0 0 0

73 Carryover basis of capital gains on gifts 0 0 0 0 0 0 0 0 0 0 0 0

74 Ordinary income treatment of loss from small busin 0 0 0 0 0 0 0 0 0 0 0 0

75 Deferral of gains from like-kind exchanges 5,720 6,000 6,310 6,630 6,960 7,300 7,670 8,050 8,460 8,880 9,320 75,580

76 Depreciation of buildings other than rental housing -3,760 -3,920 -4,170 -4,490 -4,860 -5,170 -5,460 -5,750 -6,080 -6,280 -6,450 -52,630

77 Accelerated depreciation of machinery and equipme 28,570 30,490 33,010 34,750 -5,150 -10,650 1,960 10,000 17,260 23,490 28,430 163,590

78 Expensing of certain small investments (normal tax 340 290 300 310 1,150 1,250 990 880 810 780 790 7,550

79 Graduated corporation income tax rate (normal tax 3,300 3,000 2,650 2,460 2,370 2,360 2,380 2,380 2,380 2,410 2,250 24,640

80 Exclusion of interest on small issue bonds 40 50 50 40 40 50 50 50 50 50 40 470

81 Deduction for US production activities 12,080 12,510 13,080 13,640 14,210 14,810 15,430 16,080 16,750 17,450 18,190 152,150

82 Special rules for certain film and TV production 220 160 90 50 20 0 0 0 0 0 0 320

Transportation: 

83 Tonnage tax 70 80 80 90 90 90 100 100 110 110 120 970

84 Deferral of tax on shipping companies 20 20 20 20 20 20 20 20 20 20 20 200

85 Exclusion of reimbursed employee parking expenses 0 0 0 0 0 0 0 0 0 0 0 0

86 Exclusion for employer-provided transit passes 0 0 0 0 0 0 0 0 0 0 0 0

87 Tax credit for certain expenditures for maintaining railro 110 50 0 0 0 0 0 0 0 0 0 50

88 Exclusion of interest on bonds for Highway Projects an 50 50 50 40 40 40 40 30 30 30 30 380

27

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
Community and regional development: 

89 Investment credit for rehabilitation of structures (other t 10 10 10 10 10 10 10 10 10 10 10 100

90 Exclusion of interest for airport, dock, and similar bond 200 210 210 190 200 220 220 210 210 200 200 2,070

91 Exemption of certain mutuals' and cooperatives' income 140 150 150 150 150 160 160 160 170 170 180 1,600

92 Empowerment zones 70 50 20 10 10 0 0 0 0 0 0 90

93 New markets tax credit 1,260 1,270 1,170 1,030 960 870 740 590 430 270 80 7,410

94 Credit to holders of Gulf Tax Credit Bonds. 70 70 70 60 70 70 70 70 70 70 70 690

95 Recovery Zone Bonds 6/ 40 40 40 30 40 40 40 40 40 40 40 390

96 Tribal Economic Development Bonds 10 10 10 10 10 10 10 10 10 10 10 100

Education, training, employment, and social services: 

Education: 

97 Exclusion of scholarship and fellowship income (no 0 0 0 0 0 0 0 0 0 0 0 0

98 Tax credits and deductions for postsecondary educ 0 0 0 0 0 0 0 0 0 0 0 0

99 Education Individual Retirement Accounts 0 0 0 0 0 0 0 0 0 0 0 0

100 Deductibility of student-loan interest 0 0 0 0 0 0 0 0 0 0 0 0

101 Qualified tuition programs 0 0 0 0 0 0 0 0 0 0 0 0

102 Exclusion of interest on student-loan bonds 130 140 130 120 130 140 140 140 130 130 130 1,330

103 Exclusion of interest on bonds for private nonprofit e 660 710 690 620 650 730 720 710 680 660 660 6,830

104 Credit for holders of zone academy bonds 8/ 160 170 180 170 150 130 110 90 80 60 50 1,190

105 Exclusion of interest on savings bonds redeemed to 0 0 0 0 0 0 0 0 0 0 0 0

106 Parental personal exemption for students age 19 or 0 0 0 0 0 0 0 0 0 0 0 0

107 Deductibility of charitable contributions (education) 820 860 900 950 1,000 1,040 1,100 1,150 1,210 1,270 1,330 10,810

108 Exclusion of employer-provided educational assista 0 0 0 0 0 0 0 0 0 0 0 0

109 Special deduction for teacher expenses 0 0 0 0 0 0 0 0 0 0 0 0

110 Discharge of student loan indebtedness 0 0 0 0 0 0 0 0 0 0 0 0

111 Qualified school construction bonds 9/ 160 160 160 160 160 160 160 160 160 160 160 1,600

Training, employment, and social services: 

112 Work opportunity tax credit 830 920 950 980 680 350 230 180 130 100 80 4,600

113 Employer provided child care exclusion 0 0 0 0 0 0 0 0 0 0 0 0

114 Employer-provided child care credit 10 10 10 10 10 10 10 10 10 10 10 100

115 Assistance for adopted foster children 0 0 0 0 0 0 0 0 0 0 0 0

116 Adoption credit and exclusion 0 0 0 0 0 0 0 0 0 0 0 0

117 Exclusion of employee meals and lodging (other tha 0 0 0 0 0 0 0 0 0 0 0 0

118 Credit for child and dependent care expenses 0 0 0 0 0 0 0 0 0 0 0 0

119 Credit for disabled access expenditures 0 0 0 0 0 0 0 0 0 0 0 0

120 Deductibility of charitable contributions, other than e 1,720 1,790 1,860 1,930 2,010 2,090 2,170 2,250 2,340 2,430 2,530 21,400

121 Exclusion of certain foster care payments 0 0 0 0 0 0 0 0 0 0 0 0

122 Exclusion of parsonage allowances 0 0 0 0 0 0 0 0 0 0 0 0

123 Indian employment credit 30 20 10 10 10 10 0 0 0 0 0 60

124 Credit for employer differential wage payments 0 0 0 10 10 10 10 10 10 10 10 80

Health: 

125 Exclusion of employer contributions for medical insuran 0 0 0 0 0 0 0 0 0 0 0 0

126 Self-employed medical insurance premiums 0 0 0 0 0 0 0 0 0 0 0 0

127 Medical Savings Accounts / Health Savings Accounts 0 0 0 0 0 0 0 0 0 0 0 0

128 Deductibility of medical expenses 0 0 0 0 0 0 0 0 0 0 0 0

129 Exclusion of interest on hospital construction bonds 1,010 1,090 1,070 960 1,010 1,130 1,100 1,090 1,050 1,020 1,020 10,540

130 Refundable Premium Assistance Tax Credit 11/ 0 0 0 0 0 0 0 0 0 0 0 0

131 Credit for employee health insurance expenses of sma 60 60 70 60 60 50 50 40 20 10 10 430

132 Deductibility of charitable contributions (health) 230 240 250 260 270 290 300 310 320 340 350 2,930

133 Tax credit for orphan drug research 1,700 2,040 2,450 2,940 3,530 4,230 5,080 6,100 7,320 8,790 10,550 53,030

134 Special Blue Cross/Blue Shield tax benefits 630 610 610 610 600 590 570 540 510 460 400 5,500

135 Tax credit for health insurance purchased by certain dis 0 0 0 0 0 0 0 0 0 0 0 0

136 Distributions from retirement plans for premiums for he 0 0 0 0 0 0 0 0 0 0 0 0

28

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
Income security: 

137 Child credit 14/ 0 0 0 0 0 0 0 0 0 0 0 0

138 Exclusion of railroad retirement (Social Security equiva 0 0 0 0 0 0 0 0 0 0 0 0

139 Exclusion of workers' compensation benefits 0 0 0 0 0 0 0 0 0 0 0 0

140 Exclusion of public assistance benefits (normal tax met 0 0 0 0 0 0 0 0 0 0 0 0

141 Exclusion of special benefits for disabled coal miners 0 0 0 0 0 0 0 0 0 0 0 0

142 Exclusion of military disability pensions 0 0 0 0 0 0 0 0 0 0 0 0

Net exclusion of pension contributions and earnings: 

143 Defined benefit employer plans 0 0 0 0 0 0 0 0 0 0 0 0

144 Defined contribution employer plans 0 0 0 0 0 0 0 0 0 0 0 0

145 Individual Retirement Accounts 0 0 0 0 0 0 0 0 0 0 0 0

146 Low and moderate income savers credit 0 0 0 0 0 0 0 0 0 0 0 0

147 Self-Employed plans 0 0 0 0 0 0 0 0 0 0 0 0

Exclusion of other employee benefits: 

148 Premiums on group term life insurance 0 0 0 0 0 0 0 0 0 0 0 0

149 Premiums on accident and disability insurance 0 0 0 0 0 0 0 0 0 0 0 0

150 Income of trusts to finance supplementary unemployme 0 0 0 0 0 0 0 0 0 0 0 0

151 Income of trusts to finance voluntary employee benefits 0 0 0 0 0 0 0 0 0 0 0 0

152 Special ESOP rules 1,910 1,970 2,030 2,090 2,160 2,220 2,290 2,370 2,440 2,520 2,600 22,690

153 Additional deduction for the blind 0 0 0 0 0 0 0 0 0 0 0 0

154 Additional deduction for the elderly 0 0 0 0 0 0 0 0 0 0 0 0

155 Tax credit for the elderly and disabled 0 0 0 0 0 0 0 0 0 0 0 0

156 Deductibility of casualty losses 0 0 0 0 0 0 0 0 0 0 0 0

157 Earned income tax credit 15/ 0 0 0 0 0 0 0 0 0 0 0 0

Social Security: 

Exclusion of social security benefits: 

158 Social Security benefits for retired and disabled wo 0 0 0 0 0 0 0 0 0 0 0 0

159 Credit for certain employer contributions to social se 470 490 510 530 550 580 600 630 650 680 710 5,930

Veterans benefits and services: 

160 Exclusion of veterans death benefits and disability com 0 0 0 0 0 0 0 0 0 0 0 0

161 Exclusion of veterans pensions 0 0 0 0 0 0 0 0 0 0 0 0

162 Exclusion of GI bill benefits 0 0 0 0 0 0 0 0 0 0 0 0

163 Exclusion of interest on veterans housing bonds 0 0 0 0 0 0 0 0 0 0 0 0

General purpose fiscal assistance: 

164 Exclusion of interest on public purpose State and local 8,400 9,080 8,860 8,000 8,360 9,390 9,170 9,040 8,740 8,490 8,440 87,570

165 Build America Bonds 16/ 0 0 0 0 0 0 0 0 0 0 0 0

166 Deductibility of nonbusiness State and local taxes othe 0 0 0 0 0 0 0 0 0 0 0 0

Interest: 

167 Deferral of interest on U.S. savings bonds 0 0 0 0 0 0 0 0 0 0 0 0

Addendum: Aid to State and local governments: 

Deductibility of: 

Property taxes on owner-occupied homes 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0

Exclusion of interest on State and local bonds for: 

Public purposes 8,400 9,080 8,860 8,000 8,360 9,390 9,170 9,040 8,740 8,490 8,440 87,570

Energy facilities 0 10 10 0 0 10 10 10 10 0 0 60

120 130 130 120 120 140 140 130 130 130 120 1,290

Small-issues 40 50 50 40 40 50 50 50 50 50 40 470

Owner-occupied mortgage subsidies 350 380 370 330 350 390 380 380 360 350 350 3,640

Rental housing 300 330 320 290 300 340 330 320 310 300 300 3,140

Airports, docks, and similar facilities 200 210 210 190 200 220 220 210 210 200 200 2,070

Student loans 130 140 130 120 130 140 140 140 130 130 130 1,330

Private nonprofit educational facilities 660 710 690 620 650 730 720 710 680 660 660 6,830

Hospital construction 1,010 1,090 1,070 960 1,010 1,130 1,100 1,090 1,050 1,020 1,020 10,540

Veterans' housing 0 0 0 0 0 0 0 0 0 0 0 0

Nonbusiness State and local taxes other than on 

owner-occupied homes 

See Table 1 footnotes for specific table information

Water, sewage, and hazardous waste disposal 

facilities 

29

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-26

National Defense

1 Exclusion of benefits and allowances to armed forces p 12,280 12,650 11,460 11,500 11,860 12,320 12,820 13,370 13,940 14,560 15,210 129,690

International affairs: 

2 Exclusion of income earned abroad by U.S. citizens 6,280 6,600 6,930 7,280 7,640 8,020 8,420 8,840 9,290 9,750 10,240 83,010

3 Exclusion of certain allowances for Federal employees 1,300 1,370 1,430 1,500 1,580 1,660 1,740 1,830 1,920 2,020 2,120 17,170

4 Inventory property sales source rules exception 0 0 0 0 0 0 0 0 0 0 0 0

5 Deferral of income from controlled foreign corporations 0 0 0 0 0 0 0 0 0 0 0 0

6 Deferred taxes for financial firms on certain income ear 0 0 0 0 0 0 0 0 0 0 0 0

General science, space, and technology: 

7 Expensing of research and experimentation expenditur 840 810 750 750 840 910 980 1,030 1,100 1,160 1,230 9,560

8 Credit for increasing research activities 770 920 1,010 1,080 1,160 1,250 1,340 1,450 1,560 1,680 1,810 13,260

Energy: 

9 Expensing of exploration and development costs, fuels -130 -180 -80 -10 30 50 70 80 80 80 90 210

10 Excess of percentage over cost depletion, fuels 80 80 100 110 120 140 160 190 220 240 270 1,630

11 Exception from passive loss limitation for working inter 60 40 40 40 40 30 30 30 30 30 20 330

12 Capital gains treatment of royalties on coal 150 150 150 140 140 150 150 150 160 170 170 1,530

13 Exclusion of interest on energy facility bonds 10 10 10 10 20 20 20 20 20 30 30 190

14 Energy production credit 1/ 350 440 580 740 890 1,030 1,120 1,160 1,180 1,150 1,100 9,390

15 Marginal wells credit 0 50 50 20 0 0 0 0 0 0 0

16 Energy investment credit 1/ 300 610 860 960 980 930 740 500 290 140 70 6,080

17 Alcohol fuel credits 2/ 10 10 0 0 0 0 0 0 0 0 0 10

18 Bio-Diesel and small agri-biodiesel producer tax credits 10 10 0 0 0 0 0 0 0 0 0 10

19 Tax credits for clean-fuel burning vehicles and refueling 350 400 490 520 390 330 300 230 170 150 160 3,140

20 Exclusion of utility conservation subsidies 400 420 440 460 490 510 540 560 590 620 650 5,280

21 Credit for holding clean renewable energy bonds 4/ 50 50 50 50 50 50 50 50 50 50 50 500

22 Deferral of gain from dispositions of transmission prope 0 0 0 0 0 0 0 0 0 0 0 0

23 Credit for investment in clean coal facilities 20 40 40 20 0 0 0 0 0 0 0 100

24 Temporary 50% expensing for equipment used in the re 0 0 0 0 0 0 0 0 0 0 0 0

25 Natural gas distribution pipelines treated as 15-year pro 0 0 0 0 0 0 0 0 0 0 0 0

26 Amortize all geological and geophysical expenditures o 20 20 20 20 20 20 30 20 20 10 10 190

27 Allowance of deduction for certain energy efficient com 60 10 -20 -20 -20 -20 -20 -20 -20 -20 -20 -170

28 Credit for construction of new energy efficient homes 160 120 50 20 10 0 0 0 0 0 0 200

29 Credit for energy efficiency improvements to existing ho 530 290 0 0 0 0 0 0 0 0 0 290

30 Credit for residential energy efficient property 1,450 1,460 1,500 1,550 1,470 1,270 640 150 20 0 0 8,060

31 Qualified energy conservation bonds 5/ 20 20 20 20 20 20 20 20 20 20 20 200

32 Advanced Energy Property Credit 0 -10 -10 -10 0 0 0 0 0 0 0 -30

33 Advanced nuclear power production credit 0 0 0 0 0 0 0 0 0 0 0 0

34 Reduced tax rate for nuclear decommissioning funds 0 0 0 0 0 0 0 0 0 0 0 0

Natural resources and environment: 

35 Expensing of exploration and development costs, nonfu 0 0 0 0 0 0 0 0 0 0 0 0

36 Excess of percentage over cost depletion, nonfuel mine 20 20 20 20 20 20 20 20 20 20 20 200

37 Exclusion of interest on bonds for water, sewage, and h 300 320 340 380 420 470 530 570 610 650 680 4,970

38 Capital gains treatment of certain timber income 150 150 150 140 140 150 150 150 160 170 170 1,530

39 Expensing of multiperiod timber growing costs 130 130 130 140 140 160 160 160 160 160 160 1,500

40 Tax incentives for preservation of historic structures 70 70 70 70 70 80 80 80 80 80 80 760

41 Industrial CO2 capture and sequestration tax credit 0 0 0 0 0 0 0 0 0 0 0 0

42 Deduction for endangered species recovery expenditur 20 20 20 20 20 30 30 30 30 40 40 280

Total from individuals

Table 2b. ESTIMATES OF TOTAL INDIVIDUAL INCOME TAX EXPENDITURES FOR FISCAL YEARS 2016-2026

(in millions of dollars)

30

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
Agriculture: 

43 Expensing of certain capital outlays 200 210 220 230 250 260 270 290 300 320 330 2,680

44 Expensing of certain multiperiod production costs 350 360 380 410 430 450 480 510 540 580 610 4,750

45 Treatment of loans forgiven for solvent farmers 40 50 50 50 50 50 60 60 60 60 70 560

46 Capital gains treatment of certain income 1,470 1,480 1,450 1,440 1,440 1,460 1,500 1,540 1,600 1,670 1,740 15,320

47 Income averaging for farmers 140 150 160 170 180 180 190 200 210 220 230 1,890

48 Deferral of gain on sale of farm refiners 0 0 0 0 0 0 0 0 0 0 0 0

49 Expensing of reforestation expenditures 40 40 40 40 40 50 50 50 50 60 60 480

Commerce and housing: 

Financial institutions and insurance: 

50 Exemption of credit union income 0 0 0 0 0 0 0 0 0 0 0 0

51 Exclusion and deferral of policyholder income earne 12,510 16,180 22,220 26,640 29,680 31,810 33,360 34,560 35,580 36,550 37,350 303,930

52 Exclusion or special alternative tax for small proper 0 0 0 0 0 0 0 0 0 0 0 0

53 Tax exemption of insurance income earned by tax-e 0 0 0 0 0 0 0 0 0 0 0 0

54 Small life insurance company deduction 0 0 0 0 0 0 0 0 0 0 0 0

55 Exclusion of interest spread of financial institutions 470 500 510 530 550 570 580 590 600 610 620 5,660

Housing: 

56 Exclusion of interest on owner-occupied mortgage s 850 890 960 1,060 1,180 1,340 1,480 1,610 1,730 1,820 1,900 13,970

57 Exclusion of interest on rental housing bonds 730 770 830 910 1,020 1,150 1,270 1,390 1,490 1,570 1,640 12,040

58 Deductibility of mortgage interest on owner-occupie 61,190 64,110 68,090 73,590 79,990 86,570 93,030 99,300 105,110 110,480 115,650 895,920

59 Deductibility of State and local property tax on owne 34,470 36,540 38,940 41,590 44,410 47,170 49,930 52,770 55,670 58,560 61,280 486,860

60 Deferral of income from installment sales 1,620 1,630 1,620 1,620 1,630 1,660 1,700 1,750 1,820 1,890 1,970 17,290

61 Capital gains exclusion on home sales 43,310 46,130 48,470 50,920 53,500 56,200 59,050 62,040 65,180 68,470 71,940 581,900

62 Exclusion of net imputed rental income 105,610 109,620 112,670 114,740 116,270 119,520 122,870 126,310 129,850 133,480 137,220 1,222,550

63 Exception from passive loss rules for $25,000 of ren 7,120 7,480 7,800 8,080 8,290 8,490 8,670 8,820 8,980 9,250 9,370 85,230

64 Credit for low-income housing investments 430 440 440 450 450 460 470 490 500 510 510 4,720

65 Accelerated depreciation on rental housing (normal 1,350 1,830 2,420 3,030 3,670 4,370 5,100 5,730 6,340 6,930 7,520 46,940

66 Discharge of mortgage indebtedness 3,340 1,090 0 0 0 0 0 0 0 0 0 1,090

Commerce: 

67 Discharge of business indebtedness -150 -50 10 10 10 20 30 40 50 50 50 220

68 Exceptions from imputed interest rules 50 50 60 60 60 70 70 80 80 80 90 700

69 Treatment of qualified dividends 27,980 28,810 29,850 30,940 32,100 33,370 34,720 36,160 37,690 39,290 40,990 343,920

70 Capital gains (except agriculture, timber, iron ore, a 109,530 110,270 108,560 107,620 107,780 109,210 111,760 115,240 119,500 124,450 129,800 1,144,190

71 Capital gains exclusion of small corporation stock 540 700 850 1,050 1,210 1,320 1,420 1,520 1,600 1,660 1,710 13,040

72 Step-up basis of capital gains at death 49,990 51,990 54,070 56,230 58,480 60,820 63,250 65,780 68,420 71,150 74,000 624,190

73 Carryover basis of capital gains on gifts 7,790 7,520 7,180 6,960 6,890 6,960 7,020 7,060 7,140 7,260 7,410 71,400

74 Ordinary income treatment of loss from small busin 50 50 50 50 50 50 50 50 50 50 50 500

75 Deferral of gains from like-kind exchanges 1,610 1,690 1,770 1,870 1,960 2,060 2,160 2,270 2,380 2,500 2,620 21,280

76 Depreciation of buildings other than rental housing -5,070 -5,080 -5,220 -5,520 -5,890 -6,250 -6,630 -7,000 -7,410 -7,670 -7,910 -64,580

77 Accelerated depreciation of machinery and equipme 16,060 16,590 17,310 17,670 -6,470 -10,060 -2,790 1,810 5,900 9,370 12,050 61,380

78 Expensing of certain small investments (normal tax 3,580 3,290 3,360 3,530 6,580 7,100 6,480 6,330 6,330 6,470 6,780 56,250

79 Graduated corporation income tax rate (normal tax 0 0 0 0 0 0 0 0 0 0 0 0

80 Exclusion of interest on small issue bonds 110 110 120 130 150 170 190 210 220 230 240 1,770

81 Deduction for US production activities 3,780 3,910 4,080 4,260 4,440 4,630 4,820 5,030 5,240 5,460 5,690 47,560

82 Special rules for certain film and TV production 60 40 20 10 10 0 0 0 0 0 0 80

Transportation: 

83 Tonnage tax 0 0 0 0 0 0 0 0 0 0 0 0

84 Deferral of tax on shipping companies 0 0 0 0 0 0 0 0 0 0 0 0

85 Exclusion of reimbursed employee parking expenses 2,940 3,060 3,170 3,280 3,410 3,520 3,610 3,750 3,850 4,020 4,160 35,830

86 Exclusion for employer-provided transit passes 1,010 1,080 1,140 1,210 1,290 1,370 1,440 1,520 1,600 1,630 1,690 13,970

87 Tax credit for certain expenditures for maintaining railro 30 10 0 0 0 0 0 0 0 0 0 10

88 Exclusion of interest on bonds for Highway Projects an 160 150 140 130 130 120 120 110 110 100 100 1,210

31

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
Community and regional development: 

89 Investment credit for rehabilitation of structures (other t 10 10 10 10 10 10 10 10 10 10 10 100

90 Exclusion of interest for airport, dock, and similar bond 480 510 540 600 670 760 840 910 980 1,030 1,080 7,920

91 Exemption of certain mutuals' and cooperatives' income 0 0 0 0 0 0 0 0 0 0 0 0

92 Empowerment zones 70 60 30 20 20 10 10 10 0 0 0 160

93 New markets tax credit 30 30 30 20 20 20 20 20 10 10 10 190

94 Credit to holders of Gulf Tax Credit Bonds. 160 170 180 200 230 250 280 310 330 350 360 2,660

95 Recovery Zone Bonds 6/ 90 90 100 110 120 140 150 170 180 190 200 1,450

96 Tribal Economic Development Bonds 30 30 30 30 40 40 50 50 60 60 60 450

Education, training, employment, and social services: 

Education: 

97 Exclusion of scholarship and fellowship income (no 3,290 3,410 3,500 3,560 3,690 3,820 3,960 4,100 4,240 4,400 4,550 39,230

98 Tax credits and deductions for postsecondary educ 15,530 15,620 15,450 15,590 15,720 15,730 15,720 15,720 15,690 15,630 15,520 156,390

99 Education Individual Retirement Accounts 30 40 40 40 40 40 40 50 50 50 50 440

100 Deductibility of student-loan interest 1,950 1,970 2,010 2,050 2,130 2,150 2,200 2,270 2,290 2,330 2,410 21,810

101 Qualified tuition programs 1,740 1,920 2,110 2,300 2,490 2,700 2,910 3,140 3,390 3,650 3,930 28,540

102 Exclusion of interest on student-loan bonds 310 320 350 380 430 480 540 590 630 660 690 5,070

103 Exclusion of interest on bonds for private nonprofit e 1,600 1,670 1,800 1,980 2,220 2,500 2,770 3,020 3,240 3,420 3,560 26,180

104 Credit for holders of zone academy bonds 8/ 0 0 0 0 0 0 0 0 0 0 0 0

105 Exclusion of interest on savings bonds redeemed to 30 30 30 30 30 40 40 40 40 50 50 380

106 Parental personal exemption for students age 19 or 4,220 4,210 4,310 4,470 4,600 4,720 4,830 4,940 5,030 5,100 5,180 47,390

107 Deductibility of charitable contributions (education) 4,290 4,620 4,990 5,380 5,730 6,060 6,390 6,710 7,040 7,360 7,670 61,950

108 Exclusion of employer-provided educational assista 850 900 950 990 1,040 1,090 1,140 1,200 1,260 1,320 1,380 11,270

109 Special deduction for teacher expenses 210 210 210 210 220 220 260 270 270 270 270 2,410

110 Discharge of student loan indebtedness 90 100 100 100 110 110 110 110 120 120 120 1,100

111 Qualified school construction bonds 9/ 490 490 490 490 490 490 490 490 490 490 490 4,900

Training, employment, and social services: 

112 Work opportunity tax credit 330 390 400 410 330 130 70 50 40 30 20 1,870

113 Employer provided child care exclusion 950 1,000 1,060 1,140 1,200 1,280 1,350 1,440 1,530 1,620 1,710 13,330

114 Employer-provided child care credit 0 0 0 0 0 0 0 0 0 0 0 0

115 Assistance for adopted foster children 560 580 610 650 680 720 760 800 840 890 930 7,460

116 Adoption credit and exclusion 300 310 320 340 360 350 370 360 370 370 380 3,530

117 Exclusion of employee meals and lodging (other tha 4,540 4,650 4,770 4,910 5,040 5,170 5,300 5,430 5,560 5,700 5,830 52,360

118 Credit for child and dependent care expenses 4,570 4,600 4,710 4,860 4,990 5,090 5,200 5,300 5,420 5,530 5,650 51,350

119 Credit for disabled access expenditures 10 10 10 10 10 10 10 10 10 10 10 100

120 Deductibility of charitable contributions, other than e 42,350 45,660 49,320 53,100 56,580 59,840 63,080 66,260 69,480 72,660 75,740 611,720

121 Exclusion of certain foster care payments 450 480 500 520 540 560 580 600 610 630 650 5,670

122 Exclusion of parsonage allowances 940 990 1,040 1,090 1,150 1,210 1,280 1,340 1,410 1,490 1,570 12,570

123 Indian employment credit 20 20 10 10 10 10 10 10 10 10 10 110

124 Credit for employer differential wage payments 0 0 0 0 0 0 10 10 10 10 10 50

Health: 

125 Exclusion of employer contributions for medical insuran 210,190 222,030 235,830 250,760 265,170 280,990 297,880 315,770 334,890 355,060 376,330 2,934,710

126 Self-employed medical insurance premiums 7,170 7,590 7,960 8,320 8,870 9,410 9,880 10,350 10,830 11,350 11,920 96,480

127 Medical Savings Accounts / Health Savings Accounts 5,730 6,850 8,160 9,720 11,570 13,770 16,410 19,530 23,230 27,650 32,920 169,810

128 Deductibility of medical expenses 7,970 8,680 9,920 11,550 13,450 15,610 17,970 20,850 24,250 27,790 32,090 182,160

129 Exclusion of interest on hospital construction bonds 2,470 2,580 2,770 3,050 3,420 3,860 4,270 4,650 4,990 5,270 5,490 40,350

130 Refundable Premium Assistance Tax Credit 11/ 2,070 2,410 3,170 3,810 4,620 5,700 6,010 6,170 6,500 6,710 6,900 52,000

131 Credit for employee health insurance expenses of sma 100 100 100 90 80 50 70 50 40 20 10 610

132 Deductibility of charitable contributions (health) 4,750 5,120 5,530 5,960 6,350 6,710 7,080 7,430 7,790 8,150 8,500 68,620

133 Tax credit for orphan drug research 20 20 30 30 40 50 50 60 70 90 100 540

134 Special Blue Cross/Blue Shield tax benefits 0 0 0 0 0 0 0 0 0 0 0 0

135 Tax credit for health insurance purchased by certain dis 30 30 20 10 0 0 0 0 0 0 0 60

136 Distributions from retirement plans for premiums for he 440 460 480 500 520 540 560 580 600 620 650 5,510

32

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
Income security: 

137 Child credit 14/ 24,180 24,460 24,710 24,710 24,520 24,140 23,750 23,300 22,820 22,330 21,840 236,580

138 Exclusion of railroad retirement (Social Security equiva 300 310 310 300 290 270 260 240 220 200 180 2,580

139 Exclusion of workers' compensation benefits 10,030 10,100 10,170 10,240 10,320 10,390 10,460 10,530 10,610 10,680 10,760 104,260

140 Exclusion of public assistance benefits (normal tax met 570 590 600 620 640 670 680 700 730 740 690 6,660

141 Exclusion of special benefits for disabled coal miners 30 20 20 20 20 10 10 10 10 10 10 140

142 Exclusion of military disability pensions 230 240 250 260 270 290 300 310 330 340 360 2,950

Net exclusion of pension contributions and earnings: 0 0 0 0 0 0 0 0 0 0 0 0

143 Defined benefit employer plans 70,400 70,690 70,980 70,970 69,880 68,360 66,180 63,730 61,360 58,340 54,710 655,200

144 Defined contribution employer plans 61,770 64,610 69,420 76,450 81,250 89,270 95,350 112,370 117,620 122,660 129,460 958,460

145 Individual Retirement Accounts 16,410 17,900 19,170 20,680 22,310 23,970 25,200 26,560 26,550 26,720 26,800 235,860

146 Low and moderate income savers credit 1,270 1,240 1,260 1,270 1,290 1,320 1,330 1,350 1,350 1,360 1,380 13,150

147 Self-Employed plans 28,050 30,820 33,780 37,050 40,500 44,040 47,890 52,080 56,640 61,590 66,980 471,370

Exclusion of other employee benefits: 0 0 0 0 0 0 0 0 0 0 0 0

148 Premiums on group term life insurance 2,460 2,580 2,680 2,780 2,880 2,980 3,080 3,190 3,310 3,430 3,550 30,460

149 Premiums on accident and disability insurance 320 320 330 330 330 340 340 340 350 350 350 3,380

150 Income of trusts to finance supplementary unemployme 20 20 30 40 40 40 50 50 50 50 50 420

151 Income of trusts to finance voluntary employee benefits 1,110 1,170 1,220 1,280 1,340 1,400 1,470 1,540 1,610 1,690 1,770 14,490

152 Special ESOP rules 120 120 120 120 130 130 140 140 140 150 150 1,340

153 Additional deduction for the blind 40 40 40 40 50 50 50 60 60 70 80 540

154 Additional deduction for the elderly 2,940 3,110 3,350 3,560 3,800 4,000 4,260 4,600 4,900 5,250 5,620 42,450

155 Tax credit for the elderly and disabled 10 10 10 10 10 10 10 0 0 0 0 60

156 Deductibility of casualty losses 370 390 400 410 420 440 450 460 470 480 490 4,410

157 Earned income tax credit 15/ 1,550 1,760 1,820 3,780 3,890 2,080 2,200 2,330 2,430 2,560 2,660 25,510

Social Security: 

Exclusion of social security benefits: 

158 Social Security benefits for retired and disabled wo 36,140 38,440 40,580 42,920 44,850 46,530 48,140 49,700 51,380 53,260 55,330 471,130

159 Credit for certain employer contributions to social se 530 540 570 590 620 640 670 700 730 760 790 6,610

Veterans benefits and services: 

160 Exclusion of veterans death benefits and disability com 6,770 7,290 7,720 7,980 8,250 8,520 8,780 9,060 9,340 9,630 9,930 86,500

161 Exclusion of veterans pensions 440 470 500 520 540 560 590 610 630 650 680 5,750

162 Exclusion of GI bill benefits 1,550 1,690 1,790 1,880 1,960 2,050 2,140 2,240 2,340 2,440 2,550 21,080

163 Exclusion of interest on veterans housing bonds 10 10 10 10 10 10 10 10 20 20 20 130

General purpose fiscal assistance: 

164 Exclusion of interest on public purpose State and local 20,490 21,420 23,050 25,350 28,420 32,030 35,470 38,660 41,440 43,760 45,610 335,210

165 Build America Bonds 16/ 0 0 0 0 0 0 0 0 0 0 0 0

166 Deductibility of nonbusiness State and local taxes othe 56,230 59,750 63,340 67,230 71,710 75,950 80,170 84,600 89,100 93,590 97,830 783,270

Interest: 

167 Deferral of interest on U.S. savings bonds 980 970 960 950 940 940 930 920 910 900 890 9,310

Addendum: Aid to State and local governments: 

Deductibility of: 

Property taxes on owner-occupied homes 34,470 36,540 38,940 41,590 44,410 47,170 49,930 52,770 55,670 58,560 61,280 486,860

56,230 59,750 63,340 67,230 71,710 75,950 80,170 84,600 89,100 93,590 97,830 783,270

Exclusion of interest on State and local bonds for: 

Public purposes 20,490 21,420 23,050 25,350 28,420 32,030 35,470 38,660 41,440 43,760 45,610 335,210

Energy facilities 10 10 10 10 20 20 20 20 20 30 30 190

300 320 340 380 420 470 530 570 610 650 680 4,970

Small-issues 110 110 120 130 150 170 190 210 220 230 240 1,770

Owner-occupied mortgage subsidies 850 890 960 1,060 1,180 1,340 1,480 1,610 1,730 1,820 1,900 13,970

Rental housing 730 770 830 910 1,020 1,150 1,270 1,390 1,490 1,570 1,640 12,040

Airports, docks, and similar facilities 480 510 540 600 670 760 840 910 980 1,030 1,080 7,920

Student loans 310 320 350 380 430 480 540 590 630 660 690 5,070

Private nonprofit educational facilities 1,600 1,670 1,800 1,980 2,220 2,500 2,770 3,020 3,240 3,420 3,560 26,180

Hospital construction 2,470 2,580 2,770 3,050 3,420 3,860 4,270 4,650 4,990 5,270 5,490 40,350

Veterans' housing 10 10 10 10 10 10 10 10 20 20 20 130

See Table 1 footnotes for specific table information

Water, sewage, and hazardous waste disposal 

facilities 

Nonbusiness State and local taxes other than on 

owner-occupied homes 

33

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
(in millions of dollars)

Provision 2017 2018 2017-26

125 Exclusion of employer contributions for medical insurance premiums and medical care 10/ 222,030 235,830 2,934,710

5 Deferral of income from controlled foreign corporations (normal tax method) 107,200 112,560 1,348,390

62 Exclusion of net imputed rental income 109,620 112,670 1,222,550

70 Capital gains (except agriculture, timber, iron ore, and coal) 110,270 108,560 1,144,190

144 Defined contribution employer plans 64,610 69,420 958,460

58 Deductibility of mortgage interest on owner-occupied homes 64,110 68,090 895,920

166 Deductibility of nonbusiness State and local taxes other than on owner-occupied homes 59,750 63,340 783,270

143 Defined benefit employer plans 70,690 70,980 655,200

120 Deductibility of charitable contributions, other than education and health 47,450 51,180 633,120

72 Step-up basis of capital gains at death 51,990 54,070 624,190

61 Capital gains exclusion on home sales 46,130 48,470 581,900

59 Deductibility of State and local property tax on owner-occupied homes 36,540 38,940 486,860

147 Self-Employed plans 30,820 33,780 471,370

158 Social Security benefits for retired and disabled workers and spouses, dependents and survivors 38,440 40,580 471,130

164 Exclusion of interest on public purpose State and local bonds 30,500 31,910 422,780

69 Treatment of qualified dividends 28,810 29,850 343,920

51 Exclusion and deferral of policyholder income earned on life insurance and annuity contracts 17,920 24,360 333,710

137 Child credit 14/ 24,460 24,710 236,580

145 Individual Retirement Accounts 17,900 19,170 235,860

77 Accelerated depreciation of machinery and equipment (normal tax method) 47,080 50,320 224,970

6 Deferred taxes for financial firms on certain income earned overseas 16,080 16,880 202,270

81 Deduction for US production activities 16,420 17,160 199,710

128 Deductibility of medical expenses 8,680 9,920 182,160

127 Medical Savings Accounts / Health Savings Accounts 6,850 8,160 169,810

98 Tax credits and deductions for postsecondary education expenses 7/ 15,620 15,450 156,390

8 Credit for increasing research activities 11,150 11,850 148,310

1 Exclusion of benefits and allowances to armed forces personnel 12,650 11,460 129,690

7 Expensing of research and experimentation expenditures (normal tax method) 7,110 7,660 106,130

139 Exclusion of workers' compensation benefits 10,100 10,170 104,260

75 Deferral of gains from like-kind exchanges 7,690 8,080 96,860

126 Self-employed medical insurance premiums 7,590 7,960 96,480

64 Credit for low-income housing investments 8,740 8,850 94,630

160 Exclusion of veterans death benefits and disability compensation 7,290 7,720 86,500

63 Exception from passive loss rules for $25,000 of rental loss 7,480 7,800 85,230

2 Exclusion of income earned abroad by U.S. citizens 6,600 6,930 83,010

107 Deductibility of charitable contributions (education) 5,480 5,890 72,760

132 Deductibility of charitable contributions (health) 5,360 5,780 71,550

73 Carryover basis of capital gains on gifts 7,520 7,180 71,400

4 Inventory property sales source rules exception 4,630 5,020 68,500

78 Expensing of certain small investments (normal tax method) 3,580 3,660 63,800

65 Accelerated depreciation on rental housing (normal tax method) 2,200 2,920 56,690

133 Tax credit for orphan drug research 2,060 2,480 53,570

117 Exclusion of employee meals and lodging (other than military) 4,650 4,770 52,360

130 Refundable Premium Assistance Tax Credit 11/ 2,410 3,170 52,000

118 Credit for child and dependent care expenses 4,600 4,710 51,350

129 Exclusion of interest on hospital construction bonds 3,670 3,840 50,890

106 Parental personal exemption for students age 19 or over 4,210 4,310 47,390

154 Additional deduction for the elderly 3,110 3,350 42,450

97 Exclusion of scholarship and fellowship income (normal tax method) 3,410 3,500 39,230

14 Energy production credit 1/ 1,770 2,320 37,580

85 Exclusion of reimbursed employee parking expenses 3,060 3,170 35,830

50 Exemption of credit union income 2,710 3,080 35,310

103 Exclusion of interest on bonds for private nonprofit educational facilities 2,380 2,490 33,010

148 Premiums on group term life insurance 2,580 2,680 30,460

101 Qualified tuition programs 1,920 2,110 28,540

157 Earned income tax credit 15/ 1,760 1,820 25,510

79 Graduated corporation income tax rate (normal tax method) 3,000 2,650 24,640

16 Energy investment credit 1/ 2,440 3,450 24,300

152 Special ESOP rules 2,090 2,150 24,030

100 Deductibility of student-loan interest 1,970 2,010 21,810

162 Exclusion of GI bill benefits 1,690 1,790 21,080

56 Exclusion of interest on owner-occupied mortgage subsidy bonds 1,270 1,330 17,610

60 Deferral of income from installment sales 1,630 1,620 17,290

3 Exclusion of certain allowances for Federal employees abroad 1,370 1,430 17,170

46 Capital gains treatment of certain income 1,480 1,450 15,320

57 Exclusion of interest on rental housing bonds 1,100 1,150 15,180

151 Income of trusts to finance voluntary employee benefits associations 1,170 1,220 14,490

86 Exclusion for employer-provided transit passes 1,080 1,140 13,970

113 Employer provided child care exclusion 1,000 1,060 13,330

146 Low and moderate income savers credit 1,240 1,260 13,150

71 Capital gains exclusion of small corporation stock 700 850 13,040

122 Exclusion of parsonage allowances 990 1,040 12,570

159 Credit for certain employer contributions to social security 1,030 1,080 12,540

108 Exclusion of employer-provided educational assistance 900 950 11,270

90 Exclusion of interest for airport, dock, and similar bonds 720 750 9,990

167 Deferral of interest on U.S. savings bonds 970 960 9,310

FISCAL YEAR 2017-2026 PROJECTED REVENUE EFFECT

Table 3. INCOME TAX EXPENDITURES RANKED BY TOTAL

34

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
53 Tax exemption of insurance income earned by tax-exempt organizations 720 740 8,590

10 Excess of percentage over cost depletion, fuels 400 510 8,190

30 Credit for residential energy efficient property 1,460 1,500 8,060

93 New markets tax credit 1,300 1,200 7,600

115 Assistance for adopted foster children 580 610 7,460

140 Exclusion of public assistance benefits (normal tax method) 590 600 6,660

111 Qualified school construction bonds 9/ 650 650 6,500

112 Work opportunity tax credit 1,310 1,350 6,470

102 Exclusion of interest on student-loan bonds 460 480 6,400

37 Exclusion of interest on bonds for water, sewage, and hazardous waste facilities 450 470 6,260

161 Exclusion of veterans pensions 470 500 5,750

121 Exclusion of certain foster care payments 480 500 5,670

55 Exclusion of interest spread of financial institutions 500 510 5,660

20 Exclusion of utility conservation subsidies 450 470 5,580

136 Distributions from retirement plans for premiums for health and long-term care insurance 460 480 5,510

134 Special Blue Cross/Blue Shield tax benefits 610 610 5,500

44 Expensing of certain multiperiod production costs 390 410 5,140

40 Tax incentives for preservation of historic structures 470 470 5,100

156 Deductibility of casualty losses 390 400 4,410

36 Excess of percentage over cost depletion, nonfuel minerals 420 430 4,250

39 Expensing of multiperiod timber growing costs 340 360 4,050

19 Tax credits for clean-fuel burning vehicles and refueling property 550 660 3,980

33 Advanced nuclear power production credit00 3,910

116 Adoption credit and exclusion 310 320 3,530

149 Premiums on accident and disability insurance 320 330 3,380

94 Credit to holders of Gulf Tax Credit Bonds. 240 250 3,350

142 Exclusion of military disability pensions 240 250 2,950

43 Expensing of certain capital outlays 230 240 2,910

34 Reduced tax rate for nuclear decommissioning funds 190 220 2,690

138 Exclusion of railroad retirement (Social Security equivalent) benefits 310 310 2,580

109 Special deduction for teacher expenses 210 210 2,410

80 Exclusion of interest on small issue bonds 160 170 2,240

47 Income averaging for farmers 150 160 1,890

95 Recovery Zone Bonds 6/ 130 140 1,840

91 Exemption of certain mutuals' and cooperatives' income 150 150 1,600

88 Exclusion of interest on bonds for Highway Projects and rail-truck transfer facilities 200 190 1,590

12 Capital gains treatment of royalties on coal 150 150 1,530

38 Capital gains treatment of certain timber income 150 150 1,530

104 Credit for holders of zone academy bonds 8/ 170 180 1,190

110 Discharge of student loan indebtedness 100 100 1,100

66 Discharge of mortgage indebtedness 1,0900 1,090

131 Credit for employee health insurance expenses of small business 12/ 160 170 1,040

23 Credit for investment in clean coal facilities 400 440 1,020

83 Tonnage tax 80 80 970 9 Expensing of exploration and development costs, fuels -650 -290 840

49 Expensing of reforestation expenditures 60 60 750

21 Credit for holding clean renewable energy bonds 4/ 70 70 700

68 Exceptions from imputed interest rules 50 60 700

26 Amortize all geological and geophysical expenditures over 2 years 60 60 630

52 Exclusion or special alternative tax for small property and casualty insurance companies 50 50 630

45 Treatment of loans forgiven for solvent farmers 50 50 560

96 Tribal Economic Development Bonds 40 40 550

153 Additional deduction for the blind 40 40 540

74 Ordinary income treatment of loss from small business corporation stock sale 50 50 500

35 Expensing of exploration and development costs, nonfuel minerals 40 40 480

42 Deduction for endangered species recovery expenditures 30 30 470

54 Small life insurance company deduction 40 40 450

99 Education Individual Retirement Accounts 40 40 440

150 Income of trusts to finance supplementary unemployment benefits 20 30 420

41 Industrial CO2 capture and sequestration tax credit 150 180 410

82 Special rules for certain film and TV production 200 110 400

105 Exclusion of interest on savings bonds redeemed to finance educational expenses 30 30 380

11 Exception from passive loss limitation for working interests in oil and gas properties 40 40 330

31 Qualified energy conservation bonds 5/ 30 30 300

29 Credit for energy efficiency improvements to existing homes 2900 290

28 Credit for construction of new energy efficient homes 170 70 280

13 Exclusion of interest on energy facility bonds 20 20 250

48 Deferral of gain on sale of farm refiners 20 20 250

92 Empowerment zones 110 50 250

67 Discharge of business indebtedness -50 10 220

84 Deferral of tax on shipping companies 20 20 200

89 Investment credit for rehabilitation of structures (other than historic) 20 20 200

25 Natural gas distribution pipelines treated as 15-year property 140 150 190

15 Marginal wells credit 70 70 170

123 Indian employment credit 40 20 170

141 Exclusion of special benefits for disabled coal miners 20 20 140

124 Credit for employer differential wage payments00 130

163 Exclusion of interest on veterans housing bonds 10 10 130

114 Employer-provided child care credit 10 10 100

119 Credit for disabled access expenditures 10 10 100

87 Tax credit for certain expenditures for maintaining railroad tracks 600 60

35

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
135 Tax credit for health insurance purchased by certain displaced and retired individuals 13/ 30 20 60

155 Tax credit for the elderly and disabled 10 10 60

18 Bio-Diesel and small agri-biodiesel producer tax credits 3/ 20 0 20

17 Alcohol fuel credits 2/ 10 0 10

165 Build America Bonds 16/ 0 0 0

32 Advanced Energy Property Credit -30 -30 -100

27 Allowance of deduction for certain energy efficient commercial building property 10 -30 -260

22 Deferral of gain from dispositions of transmission property to implement FERC restructuring policy -190 -270 -1,220

24 Temporary 50% expensing for equipment used in the refining of liquid fuels -1,380 -1,140 -5,340

76 Depreciation of buildings other than rental housing (normal tax method) -9,000 -9,390 -117,210

See Table 1 footnotes for specific table information

36

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016
2016

Provision Present Value

of Revenue Loss

5 Deferral of income from controlled foreign corporations (normal tax method) 60,600

7 Expensing of research and experimentation expenditures (normal tax method) 3,090

21 Credit for holding clean renewable energy bonds 0

9 Expensing of exploration and development costs - fuels 150

35 Expensing of exploration and development costs - nonfuels 10

39 Expensing of multiperiod timber growing costs 120

44 Expensing of certain multiperiod production costs - agriculture -140

43 Expensing of certain capital outlays - agriculture -100

49 Expensing of reforestation expenditures 30

51 Exclusion and deferral of policyholder income earned on life insurance and annuity contracts 1/ 12,720

65 Accelerated depreciation on rental housing 17,470

76 Depreciation of buildings other than rental -3,430

77 Accelerated depreciation of machinery and equipment 20,250

78 Expensing of certain small investments (normal tax method) 940

104 Credit for holders of zone academy bonds 160

64 Credit for low-income housing investments 6,190

101 Qualified tuition programs 3,790

143 Defined benefit employer plans 30,510

144 Defined contribution employer plans 72,100

145 Exclusion of IRA contributions and earnings 1,390

145 Exclusion of Roth earnings and distributions 4,540

145 Exclusion of non-deductible IRA earnings 450

147 Exclusion of contributions and earnings for Self-Employed plans 5,120

164 Exclusion of interest on public-purpose bonds 14,900

Exclusion of interest on non-public purpose bonds 3,880

170 Deferral of interest on U.S. savings bonds 260

1/ Estimate is for annuities only. Life insurance earnings are mostly excluded from taxable income.

Table 4. PRESENT VALUE OF SELECTED TAX EXPENDITURES

FOR ACTIVITY IN CALENDAR YEAR 2016

(in millions of dollars)

37

U.S. Department of the Treasury

Office of Tax Analysis

September 28, 2016