In 1986 Congress overhauled the federal tax code, purging it of various exemptions, deductions and credits and using the savings to reduce marginal rates on both individuals and firms. It was a major victory for governmental simplicity, fairness and efficiency which Congresses and presidents of both parties then proceeded to undo by tweaking the tax code 15,000 times over the last quarter-century. Special breaks, large and small, have crept back into the code, like crabgrass invading a freshly weeded lawn.
Individual and corporate "tax expenditures" cost about $1 trillion in fiscal 2011, according to the Treasury Department. In the individual code, most of the benefits accrued to people who are already relatively well-off; the top fifth of income earners reap more than half of the proceeds from the 10 largest tax expenditures, according to the Congressional Budget Office.
The two biggest tax expenditures, the exclusion for employer-paid health benefits and the mortgage-interest deduction, not only skew in favor of the well-off, but also distort the wider markets for health care and housing.