- Recall that a tax loophole is somebody else's tax break.
is somebody else's tax break.
Let's look at what the biggest loopholes are.
The US government each year publishes a list
publishes a list of the tax breaks,
of the tax breaks,
and the magnitude of tax savings
created for taxpayers by these tax breaks.
for taxpayers by these tax breaks.
Here's the list for individuals.
You can see that by far,
the largest tax break or tax loophole in the US tax code
or tax loophole in the U.S. Tax Code
is the fact that the US government allows people
people to put money in a retirement plan,
to put money in a retirement plan,
such as a 401(k) plan,
such as a 401K plan and not pay immediate
and not pay immediate income tax on that amount.
income tax on that amount.
The value of that tax break to taxpayers
is $251 billion per year.
The second largest tax break or tax loophole
is the benefit that is given to individuals
because they don't haveto pay tax on the value
because they don't have to pay tax
on the value of the medical insurance
of the medical insurance provided to them
provided to them by their employer.
by their employer.
That is a $146 billion tax break.
That's taxes not collected by the US government
because they do not tax this source of income.
The fact that capital gains and dividends
are taxed at lower rates
results in a tax reduction of $129 billion per year.
reduction of $129 billion per year.
Other significant tax breaks
are the deductibility of home mortgage interest,
the earned income tax credit,
the child tax credit,
and the deductibility of charitable contributions.
of charitable contributions.
All of these cost the US government
tens of billions of dollars a year.
of billions of dollars a year.
Now, to the people who benefit from these tax rules,
from these tax rules, they are tax breaks.
they are tax breaks.
To the people who don't receive these benefits,
who are on the outside looking in,
these look like a tax loophole.
Now, sometimes people suggest
that we should just simplify the individual tax code,
just simplify the individual tax code.
just have everybody pay a certain percentage of their income
of their income with no tax breaks.
with no tax breaks.
Well, that's a very nice idea.
Well, that's a very nice idea,
but there are tens of millions of Americans
who are beneficiaries of each one of these tax breaks.
of these tax breaks.
Tens of millions of Americans who receive the benefit
the benefit of not paying tax on the value
of not paying tax
on the value of their employer-provided medical insurance,
of their employer-providedmedical insurance,
or who get a tax break because they have an IRA
or a 401K plan,
or a 401(k) plan,
who receive the earned income tax credit,
a child tax credit,
or who receive benefits from charitable contributions.
from charitable contributions.
If the U.S. Congress ever seriously considered
eliminating all the tax breaks to simplify the tax code,
the tax code they would create an uproar
they would create an uproar
among the couple of hundred million beneficiaries
beneficiaries of the current system.
of the current system.
Now, my opinion,
tax simplification is just not possible
Because the people who get the tax breaks
are you and me.
and we have become accustomed to arranging our affairs
our affairs aroundreceiving those tax breaks.
around receiving those tax breaks.