Last month, Congress’ Joint Committee on Taxation (JCT) released its annual “tax expenditure report.” This is a list of many tax code rules that result in the government not collecting tax on what would otherwise be taxable income. Many of these rules directly benefit life and health insurance, retirement savings, employer-provided benefits, and general investments.
The report emphasizes that a tax expenditure is not the same thing as a revenue estimate, for a variety of reasons. One major reason is that not all revenue-raising rule changes qualify as a “tax expenditure”—for example, they point out that estate taxes and the exclusion from a worker’s income for employer provided health insurance do not meet the definition of “tax expenditure,” JCT said. However, the report goes on, employer-paid health insurance premiums do constitute a tax expenditure. Further, revenue estimates factor in anticipated behavioral changes that result from a change in the rules, whereas the value of a tax expenditure does not.
Below is a list of many of the tax expenditures that impact life and health insurance, retirement savings, general investments, and employer-provided benefits. These are all areas of risk for revenue-raising tax code changes when Congress looks for offsetting revenue, or revenue to reduce the federal debt/deficit. It makes clear why we are at such risk whenever the issue of revenue comes into play.
Value of tax expenditures over five years
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Select Items, 2023-2027 JCT Tax Expenditure List |
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VEBAs |
$10.5 billion |
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Life Insurance Company Reserves |
$11.9 billion |
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Group Term Life Insurance |
$22.2 billion |
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Accident and DI Insurance |
$34.7 billion |
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ESOPs |
$35.0 billion |
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Self-Insured Health Insurance/LTC |
$46.0 billion |
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Roth IRAs |
$71.2 billion |
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HSAs |
$72.2 billion |
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Medical/LTC Expense Deduction |
$76.8 billion |
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Keogh Plans |
$87.3 billion |
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Death Benefits |
$92.6 billion |
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Traditional IRAs |
$104.2 billion |
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Section 199A |
$199.0 billion |
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Charitable Contributions |
$284.9 billion |
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Exclusion of Capital Gains at Death |
$308.9 billion |
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Exchange-Based Health Insurance |
$447.7 billion |
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Defined Benefit Pension Plans |
$657.2 billion |
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Employer Contributions to Health Insurance/LTC |
$1,123.4 trillion |
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Long-Term Capital Gains/Dividends |
$1,219.6 trillion |
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Defined Contribution Retirement Savings Plans |
$1,552.0 trillion |
Prospects: The tax expenditure report each year is the source of revenue-raising ideas, even though the cost of a tax expenditure (as JCT estimates it) is not the actual revenue JCT estimates would be raised by repealing any given tax expenditure. With growing focus on the now $34 trillion federal debt, along with next year’s need to address the expiring individual and estate tax provisions of the 2017 Tax Cuts and Jobs Act (TCJA), the search for revenue will intensify. For example, a full extension of the TCJA’s expiring provisions is estimated to cost $3.4 trillion over ten years. That makes this list of tax expenditures an appealing target. Needless to say, NAIFA is and will remain on high alert for any revenue-grabbing proposals that would adversely impact the products and services that NAIFA members offer their clients.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
