Just eliminate deductions and exclusions to cure our budget problems. Yes? Not so easy.
Here is a list of the 20 largest “Tax Expenditures” for 2012 from Credit Suisse. As you can see, each provision connects to an incentive that makes it desirable. The employer-sponsored exclusion that involves $171 billion? But we want to encourage employer provided health insurance. Pension contribution? But we should push people to save. Charitable contributions? Yes, people should get an additional perk from doing good. Mortgage interest deduction? Let’s continue to facilitate home ownership.
And maybe the biggest incentive of all? It would be political suicide for lawmakers to touch many of these provisions.
On the other hand, we should remember the opportunity cost of the $900 billion cost of these 20 provisions. It is a healthier federal budget.
A final fact: Looking at the federal budget, how big is $900 billion? This NY Times bubble interactive perfectly conveys the numbers. In President Obama’s 2013 budget proposal, Social Security is allocated $895 billion while the Centers for Medicare and Medicaid Services get $1.18 trillion.
Sources and Resources: The chart is from a Business Insider article.