1. The Hidden Welfare State
Burman and Slemrod: Chapter 7

2. Tax Expenditures
Tax expenditures make up a substantial part of the federal budget. Some of them are larger than the entire budgets of the programs or departments that spend money for the same or related purposes. For example, the value of the tax breaks for homeownership exceeds total spending by the Department of Housing and Urban Development.
Tax Policy Center at the Urban Institute

3. Why have tax expenditures been growing?
How do you initiate a new program?
Raise taxes and expenditures
Cut taxes
Which is politically more attractive?

4. Earned Income Tax Credit (EITC)
Example of Married Filing Jointly with One Child

5. Tax Credit AGI Credit Per $ AGI $0 - $10,050 $0.34 $10,050 - $24,000
$24,000 - $45,200
($0.16)

6. Exemptions, Deductions, and Brackets
Standard Deduction
$12,700
Exemptions 3
$ 4,050
$12,150
Total
$24,850
Taxable Income starts at $24,850
AGI $0
$24,850 0%
$24,851
$43,500
10%
$43,501
$45,200
15%

7. Effective Marginal Rates
Range of AGI
Credit Rate
Tax Rate
Effective Marginal Rate
$0 - $10,500
Increasing Credit
-34%
$10,500 - $24,000
Flat Credit 0%
$24,000 - $24,850
Declining Credit No Tax
16%
$24,850 - $43,500
Declining Credit with Bracket I Tax Rate
10%
26%
$43,500 - $45,200
Declining Credit with Bracket II Tax Rate
15%
31%