Carlos Barria | Reuters
U.S. National Economic Director Gary Cohn (L) and Treasury Secretary Steven Mnuchin unveil the Trump administration’s tax reform proposal in the White House briefing room in Washington, U.S, April 26, 2017.
In the messy fight over tax reform, all sides can agree on one point: The U.S. tax system is way too complicated.
That’s why Republicans are calling for a massive rewrite that would simplify the code.
The White House has proposed doing that by closing almost all of the roughly 200 loopholes that riddle the system. These special carve-outs are worth an estimated $18.4 trillion over the next decade — money that the GOP wants to use to pay for across-the-board tax cuts instead.
But getting rid of what are technically known as tax expenditures is politically perilous. Many of them are in existence because they are backed by vocal constituencies willing to fight for them. We’re not just talking about the big-money corporate lobbyists that lawmakers love to profess to hate. The laundry list of loopholes also includes breaks for student loans, foster care, even railroad worker retirement plans.
“You won’t get rid of all of them. You just won’t get it,” said Republican former Rep. Tom Davis, now director of federal government affairs at Deloitte. “None of them are easy, or else they would have been done already.”
In fact, the lion’s share of loopholes is enjoyed by households, not corporations. The Tax Foundation estimates that tax expenditures in the individual code are worth $15.6 trillion over the next decade compared with $2.7 trillion for business loopholes.
The largest individual expenditure is related to health care. Many businesses pay for part of their employees’ insurance premiums, but workers don’t have to count that as income for tax purposes. The so-called health-care exclusion amounts to $2.9 trillion in lost federal revenue over a decade, according to the Tax Foundation.
Two of the top five individual breaks focus on housing, including the popular mortgage interest deduction, which the group puts at $895 billion. Retirement benefits and the tax treatment of capital gains are also among the biggies.