As part of his much-discussed tax plan, Mitt Romney has said he plans to eliminate or place caps on certain deductions and loopholes. The idea sounds great on the campaign trail -- but it's not clear exactly where the Republican presidential nominee plans to take aim.
Romney has been clear about at least one planned cut: a change in household deductions. Last week, Romney floated an idea to cap households' deductions at $17,000 each year. But killing -- or even capping -- a revered tax break or loophole might be easier said than done.
Some tax preferences are so baked into the tax code that they have become sacred for individuals and corporations alike. Would a consumer really buy a house without considering the possible savings available through a mortgage deduction? Could companies provide the same shareholder returns if they couldn't use offshore tax havens to lower their bills?
Still, it's not cheap for Uncle Sam to offer tax discounts. Tax breaks, preferences and loopholes -- called tax expenditures by the government -- reduced the government's income by as much as $1.2 trillion last year, The New York Times reported.
And so far, President Barack Obama has not had much luck killing some of the tax breaks he's characterized as problematic. Obama railed against big oil and gas tax subsidies last spring, only to have his efforts shut down by the GOP.
Even if Romney is hoping to emulate another president famous for cutting taxes, Ronald Reagan, he could face major headwinds from lobby groups.
"When Romney says he is going to pay for the rate reduction by closing loopholes, that will be an incredibly difficult process because each one has a constituency that will fight to keep it," said Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice, a nonpartisan tax think tank in Washington, D.C.
Here are eight tax breaks and loopholes that are costing the government billions each year:
The government loses an estimated $100 billion per year in taxes when American corporations and individuals put money into offshore shell companies where the IRS can't touch it, according to a report from Public Interest Research Group. Pictured left is the Ugland House, the registered office for thousands of global companies, on Grand Cayman Island.
The biggest individual tax break is the ability to write off interest paid on a home loan, which cost the government around $104.5 billion in 2011. The housing industry has a powerful lobby to keep this tax break intact, arguing that the stability of the housing market depends on it.
Employees don't pay taxes on the value of what's provided for medical insurance -- the equivalent of thousands of dollars in compensation. The break cost the government at least $177 billion in 2011.
Investment earnings get a better tax rate than other income -- that's Uncle Sam's way of rewarding investors for taking the risk in the first place. However, the break cost the government at least $44 billion in 2011.
As many as 37 million tax payers, including both presidential candidates, write off charitable contributions and lower their taxable income each year. This deduction cost the government almost $44 billion in 2011, excluding education and health-related charitable deductions.
Tax benefits for contributions to 401(k) plans and pensions are a healthy tax break for Americans -- but the government lost more than $100 billion in tax revenue in 2011 by not taxing income put into retirement savings plans.
The oil and gas industry gets at least $4 billion in tax benefits each year. Benefits include claiming a domestic manufacturing deduction equal to 6 percent of taxable income, expensing intangible costs and writing off declines in investment value on wells, according to Remapping Debate, a public policy nonprofit group.
Some U.S. companies transfer intellectual property, like patents or trademarks, to shell companies in tax havens. Companies pay high royalties to use them, thus draining profits on one side and pushing profits to offshore or out-of-state subsidiaries to hide from tax collectors. Toys"R"Us, for example, has leased the right to use its own logo from a subsidiary in Delaware, where taxes for intellectual property are minimal.