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The 12 Largest Individual Tax Expenditures

1 min readBy: Andrew Lundeen, Scott Hodge

While there may be more than 160 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. preferences in the code, most are small in cost and targeted to discrete missions such as the incentives for adopting children or purchasing hybrid cars. To be sure, lawmakers should wipe the slate clean of any inefficient and obsolete provisions, but the big savings are in just a handful of provisions that touch a wide swath of the American public.

The biggest provision by far in the code is the exclusion of taxes on employer-provided health insurance, with a budgetary cost of $212 billion annually. There are a couple of separate provisions that exclude taxes on pensions and 401(k)s that we have combined here for a “cost” of $176 billion. The mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. is the other substantial preference in the code. The dozen preferences listed here have a total budgetary cost of $828 billion—some 75 percent of the cost of all individual tax preferences.

For more charts like the one below, see the second edition of our chart book, Putting a Face on America's Tax Returns.