The Problem With Patching Up the Tax Code

As the U.S. approaches the fiscal cliff on Jan. 1, closing some of the tax loopholes that cost the Treasury $1.3 trillion a year is emerging as a seemingly easy way to end the impasse over budget reform. House Speaker John Boehner favors broadening the tax base to generate more revenue without raising rates. President Barack Obama, while continuing to demand higher rates on top incomes, says limiting the use of loopholes for the wealthy could be part of the solution.

Loopholes are woven into the fabric of daily life: the home mortgage interest deduction, the favorable tax treatment for investment income, the break that leads so much of health insurance to be provided by employers. Some benefit the rich; others the poor. Some enhance growth; others, not so much.