As Congress and the White House move forward on a bipartisan deal to avert the fiscal cliff, policymakers are looking with increased scrutiny at the hundreds of tax expenditures that cost the United States as much as $1.2 trillion a year (about the size of the annual budget deficit), distort market behavior and complicate the tax code. Whether they are called subsidies, loopholes, deductions or tax breaks, all tax expenditures amount to the same thing: targeted spending for special interests through the tax code, which allows politicians to claim they are lowering taxes rather than increasing spending.

But selectively lowering taxes by allowing deductions and increasing spending are essentially the same thing, from the Treasury's point of view. The only people who benefit from this distinction are the thousands of corporate tax lawyers and personal accountants who make a living off the tax code's complexity.

That doesn't mean that all tax breaks are handouts to Big Business. Two of the largest and most popular deductions benefit middle class households: the exclusion for employer-sponsored health insurance cost $177 billion last year, while the home mortgage interest deduction cost $105 billion. The five year total for both, through 2015, is estimated at nearly $1.7 trillion.

Other tax expenditures, like the $350 million spent last year on subsidies for the timber industry, represent smaller, but no less entrenched, special interests.

In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. Each fails the test established by the Working Group: Does the tax break address a market failure? Can we measure its success or failure? Is the tax break cost-effective? And why is this tax break better than a direct spending program?

(Download the Working Group Report and Background Papers.)

These “dirty dozen,” which today cost a combined $73.4 billion a year, are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century as we reintroduce each of the “dirty dozen” and explain why it's long past time to eliminate these costly tax breaks.

The “Dirty Dozen” Tax Breaks: