Raise revenues and reform the Tax Code? Easy -- just eliminate all the tax loopholes, right?
Good luck with that.
"Eliminating loopholes" sounds a lot better than "raising rates": The tax rate is what I pay, and a loophole is what the other guy gets.
But the biggest loopholes in the U.S. Tax Code -- generally referred to as tax expenditures -- aren't just the tricks of the trade for millionaires with offshore bank accounts. For the vast majority of Americans, they're just how things work: You don't pay taxes on your health insurance or Medicare benefits; you contribute tax-free to your 401(k); and your mortgage interest pushes down your tax bill each year.
And even if you dump the biggest of the set, these tax perks don't even come close to closing the deficit. At best, the top 10 would pull in an extra $834 billion a year, according to Joint Committee on Taxation figures. Considering the hole lawmakers are trying to fill is several trillion dollars large, it's clear they wouldn't even come close.
Here are the 10 biggest tax loopholes -- and the reasons why most of them will survive the fiscal cliff.
Exclusion of employer-sponsored health insurance -- $164.2 billion
A vestige of the World War II era, the health insurance tax exclusion is the big kahuna of expenditures.
More than 60 percent of Americans get their insurance through their jobs, making this "loophole" part of the fabric of the workplace. The exclusion is popular generally -- and very important to lower- to middle-class workers who might otherwise be shut out of the expensive insurance market.
It's also a boon to health insurers because it expands their client base.
Obamacare capped the benefits that high-income earners can claim tax-free, but the broader tax exclusion isn't going anywhere.
Exclusion of employer pension benefits -- $162.7 billion
For nearly 40 years, workers have taken for granted that contributions to, and earnings from, long-term savings plans like 401(k)'s and individual retirement accounts are not taxed upfront.
The exclusion is designed to encourage Americans to save more for retirement even though it has an outsize benefit for higher-income workers, who contribute more and pay higher marginal rates. The Brookings Institution's William Gale has proposed replacing it with a nonrefundable tax credit.
But critics say getting rid of the tax break would also make folks at the lower end of the pay scale less likely to put money away for retirement.
Mortgage interest deduction -- $99.8 billion
It's always the first tax break mentioned when talk of tax reform heats up. And it's always the first one to be taken off the table.
This expenditure is one of the most politically popular. Homeowners love it. The deduction enjoys the enthusiastic backing of the influential real estate industry. Moreover, homeownership is seen as a marker for the health of the overall economy -- and if homebuyers can't count on the deduction, supporters argue, the result will be a decrease in home values.
Still, the deduction encourages taxpayers to buy up more expensive mortgages or purchase second homes. Whether that's a good thing depends on the buyer -- remember the mortgage crisis? And some new homeowners don't make enough money to itemize their deductions, so they don't claim the deduction.
Regardless, while closing tax loopholes is a priority, the Obama administration has proposed limiting the break for only the wealthy. Shaun Donovan, secretary of Housing and Urban Development, said earlier this fall that "anything that would change the system substantially now [would] have a real risk of stopping the momentum that we have in the housing market."
Exclusion of Medicare benefits -- $76.2 billion
Medicare ensures that seniors -- one of the most politically active segments of the electorate -- have access to health insurance, so don't expect anyone to propose taking away the tax-free status of their benefits.
It's highly unpopular to increase living costs for the elderly, and AARP boasts an aggressive lobbying operation to protect benefits for its constituents.
Lower capital gains rates -- $71.4 billion
The special low tax rate on investment income isn't often thought of as a tax expenditure, but that's the way government budget-crunchers look at it -- making it the "loophole" most beneficial to the country's richest people.
Awareness of the lower capital gains rate increased during the 2012 campaign because it was the primary reason that Mitt Romney paid an effective tax rate of only 14 percent in 2011 even though he earned $13.7 million.
The main argument for keeping the rate low is that it encourages financiers -- as well as middle-class investors -- to take risks and invest, spurring economic growth. Liberal economists, however, argue that it drives income inequality.
Still, many of the beneficiaries are also generous campaign contributors. And business groups are trying to save the low Bush-era capital gains tax rate from increasing next year.
The earned income tax credit -- $58.4 billion
Since 1975, the earned income tax credit has helped create cash refunds for the working poor and middle-class families, an economic benefit even budget hawks are wary of criticizing. And the credit, the second-largest cash assistance program on the books, has tangible benefits -- the tax credit lifted 3 million children out of poverty in 2010.
Enacted under President Gerald Ford and lauded by Presidents Ronald Reagan and George W. Bush, the credit has enjoyed bipartisan support for most of its life.
But recently, deficit hawks have balked at the $4.2 billion the tax credit has paid out to ineligible illegal immigrants as a reason it should be taken off the books.
Still, Democrats will frame any effort to reform, eliminate or cap this credit as an attack on children.
Deduction of state and local income taxes -- $54 billion
The ability to deduct state and local income taxes from federal tax bills is maligned on the right as a sop to blue states with higher tax rates, one reason it's been a potential target of reformers since the 1986 tax reform bill.
But there's a reason it's survived that long. State and local governments are also huge champions of the federal tax deduction because it acts as a subsidy for their budgets -- their residents tolerate higher state and local taxes because they get the big federal write-off, the theory goes.
And watch for high-tax state politicians to keep up their fight for this loophole and their citizens, some of whom might otherwise flee to low-tax states.
Exclusion of gains at death and the gift carryover exclusion -- $51.9 billion
These exclusions allow hundreds of billions of dollars to transfer hands tax-free through gifts and inheritances, a huge revenue loss for the government.
Under the exclusion, when heirs sell stock or property, they pay taxes on the gains made from the time the asset is inherited -- not from the time of original purchase.
Despite some criticism that the tax break undermines the original point of the estate tax -- to prevent an aristocratic class -- conservatives, joined by trade groups, cry "double taxation," so this exclusion is politically popular. That's also a large reason the Tax Code allows individuals to carry unused portions of the $1 million tax-free gift cap from year to year.
Deduction of charitable contributions -- $51.6 billion
This write-off has strong support from the country's 1.2 million charities and foundations. Critics of the deduction question a federal subsidy for altruism. But despite numerous attempts to cap it, the deduction has remained in the Tax Code for decades.
And there is big money on the line. Charitable groups cite economic studies that found repealing or capping the deduction could decrease giving by up to $5.6 billion annually. The foundations joined the political fray again last month after Romney suggested an overall deduction cap as a way to fund new tax cuts.
Exclusion of employer benefits under so-called cafeteria plans -- $43.8 billion
Increasing health care costs have forced the government to provide incentives to families that set money aside for premium contributions and out-of-pocket and unreimbursed medical expenses.
It's a popular tax benefit for middle-income families. And just like the health insurance tax break, it directly benefits low- and middle-income families and creates more clients for the influential medical industry.
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