7 Key Charts on Tax Breaks
Last Updated January 17, 2025
The United States lost an estimated $1.9 trillion in revenues through tax expenditures in 2024, according to the Joint Committee on Taxation (JCT). In their recent report, JCT notes that tax expenditures also known as “tax breaks” “include any reductions in income tax liabilities that result from special tax provisions or regulations that provide tax benefits to particular taxpayers. Special income tax provisions are referred to as tax expenditures because they may be analogous to direct outlay programs and may be considered alternative means of accomplishing similar budget policy objectives.” Below are seven key takeaways from JCT’s latest report on tax expenditures:
1. Tax expenditures cost more than any federal spending program.
In 2024, the federal government collected $3.0 trillion in individual and corporate taxes. At the same time, the tax code generated $1.9 trillion in tax breaks. That amount is more than the United States spends on Social Security, Medicare, defense, or any other individual program.
2. The cost of tax breaks was greater than the size of the deficit in 2024
At the end of fiscal year 2024, the Department of the Treasury reported a deficit of $1.8 trillion. That is the largest federal deficit reported, aside from years during the COVID-19 pandemic. Still, JCT estimated that federal expenditures on tax breaks exceeded the size of the deficit in 2024.
3. Most tax expenditures apply to individual income taxes.
Individual income tax expenditures totaled $1.7 trillion in 2024; tax breaks for corporations amounted to $188 billion. The largest tax break related to individual income taxes was for reduced rates on dividends and capital gains, which was responsible for $237 billion in revenue loss. The most costly corporate tax expenditure was for reduced rates on income from foreign corporations, costing the federal government $57 billion in tax revenues.
4. About one-third of higher-income taxpayers itemize their tax returns.
Taxpayers with higher income were much more likely to itemize deductions on their federal tax returns than take the standard deduction. The Internal Revenue Service (IRS) recommends taxpayers itemize deductions when the total amount of allowable itemized deductions is greater than the standard deduction. As a result, higher-income taxpayers are better able to take advantage of tax expenditures and reduce their tax liability. According to the most recent IRS data, average deductions for those who itemized totaled $43,686 in tax year 2022. That year, the standard deduction was $12,950 for single filers and $25,900 for joint filers.
5. Of the three most claimed deductions, a majority of the benefits go to higher-income taxpayers.
The most frequently claimed deductions are those for state and local taxes, charitable contributions, and mortgage interest. JCT estimated that in 2024, 82 percent of the tax benefits from those three deductions went to taxpayers with incomes over $200,000. The deduction for charitable contributions was the most inequitable deduction of the three, with $60 billion out of the total cost of $65 billion going to the highest income bracket.
6. Most refundable tax credits support children and healthcare.
Some tax credits are refundable, meaning that eligible taxpayers can receive funds in excess of their tax liability. The three largest refundable tax credits — premium tax credits, the earned income tax credit (EITC), and the child tax credit (CTC) — account for 96 percent of all expenditures for refundable credits. Those refundable credits help taxpayers afford health insurance coverage and ease the financial burden associated with raising children. Premium tax credits help families purchase health insurance coverage through state and federal marketplaces. They were the largest refundable tax credit in 2024 with a refundable portion of $98 billion, which made up 86 percent of the total cost. The EITC and CTC are intended to help families with children and can help alleviate financial stress, lower child poverty rates, and support children’s development. In 2024, the EITC had a refundable portion of $57 billion, which made up 86 percent of the total credit. The refundable portion of the CTC was notably smaller — $47 billion, which was 37 percent of the total credit.
7. The cost of tax breaks is projected to increase over the next four years.
The cost of tax expenditures increased over the last year, and JCT estimated that the cost will continue to grow over the next four years. That growth will be accelerated by the expiration of some provisions of the Tax Cuts and Jobs Act at the end of 2025. In fact, from 2025 to 2026 alone, revenue loss due to tax breaks will increase by 8 percent, or $155 billion, if current policies expire.
Conclusion
Tax expenditures are the most costly “program” for the federal government, causing revenue loss totaling $1.9 trillion in 2024. Over the next four years, the JCT estimates that they will only become more expensive. As policymakers consider reforms to federal taxes and the U.S. budget, tax breaks are a key piece of the puzzle for fixing the imbalance between spending and revenues.
Image credit: Photo by Zach Gibson / Getty Images
Further Reading
Budget Basics: Tax Expenditures
Tax expenditures can come in the form of exclusions, exemptions, deductions, and credits.
The U.S. Forgoes Hundreds of Billions of Dollars Each Year Due to Unpaid Taxes
Cracking down on the tax gap would not only introduce more fairness into the system, but it could be a big help for our nation’s fiscal imbalance.
The Next Fiscal Cliff: Big Tax Decisions to Make in 2025
Some TCJA provisions were made temporary to limit the negative fiscal impact of the 2017 bill. It sets up a significant decision point for policymakers next year.