But tax loopholes are not just for corporations. The mortgage interest tax deduction will cost the Treasury $94 billion this year. The tax deduction for property taxes and the exclusion of profits on the sale of your house will cost another $39 billion. That's $133 billion the government is paying every year to encourage people to buy houses (and look where that got us). The single biggest tax break is the exclusion of employer-paid health insurance, which costs $117 billion.
You probably know all about tax expenditures--the respectable name for loopholes--so I'll be brief. Tax expenditures are modifications to the tax code that further some alleged societal interest or help some interest group. They function like government spending--more money ends up in certain people's pockets--while being accounted for as lower taxes. This means they perform the magic trick of increasing the government's influence over society while reducing tax revenues (further proving that total spending and total taxes are nearly meaningless when determining the size of government).
Tax expenditures are often less efficient than spending, and they tend to benefit the wealthy. The rich are in higher tax brackets, so they gain more from deductions. They have bigger houses and better health plans, so they have more house and health care to deduct. Meanwhile, millions of lower-class families often don't have enough deductions to itemize, so they get little benefit from deductions.
WHAT WE CAN ACTUALLY DO
With the debt ceiling crisis past, and S&P demanding further deficit reduction, the next step is for a joint committee of Congress to identify at least $1.5 trillion in deficit reduction over the next ten years. The simplest, most sensible way to do this would be to eliminate tax expenditures.
For starters, eliminating the mortgage interest tax deduction, the exclusion of profits on the sale of your house, and the exclusion for employer-paid health insurance would yield $240 billion next year: phase that in over ten years and you easily get far more than $1.2 trillion (in nominal terms). I picked these because they are big, they are simple, and they distort the economy in bad ways. The housing subsidies lead people to buy too much housing, and the health insurance subsidy leads companies to pay too much for health insurance.
Some of the other big expenditures can be plausibly defended on economic grounds, although I could live without them as well. Tax preferences for retirement plans ($123 billion this year), while tilted toward the rich, arguably encourage people to save more. The deduction for state and local taxes ($66 billion) is basically a transfer to state and local governments, and eliminating that transfer would just increase state and local government deficits. But there are plenty more to choose from, like the step-up in basis at death (if you die holding an asset, no one ever pays tax on the appreciation during your lifetime; $32 billion) and a host of industry-specific tax breaks.