The United States lost an estimated $2.2 trillion in revenues through tax expenditures, commonly known as tax breaks, in 2025. According to the Joint Committee on Taxation (JCT), tax expenditures “include any reductions in income tax liabilities that result from special tax provisions or regulations that provide tax benefits to particular taxpayers.” Because tax expenditures generate trillions of dollars of revenue loss, policy experts and economists agree that the tax code can be reformed to be simpler, fairer, and more supportive of economic growth while also reducing federal deficits. Below are eight key takeaways from JCT’s latest report on tax expenditures.
1) Tax expenditures cost more than any federal spending program.
In 2025, the federal government collected $3.1 trillion in individual and corporate taxes. At the same time, the tax code generated $2.2 trillion in tax breaks. That amount is more than the United States spent on Social Security, Medicare, defense, or any other program.
2) The cost of tax breaks was greater than the size of the deficit in 2025.
At the end of fiscal year 2025, the Department of the Treasury reported a deficit of $1.8 trillion. JCT estimated that tax breaks exceeded the size of the deficit in 2025 by $444 billion.
3) Tax breaks are intended to achieve varied policy goals.
The intended policy goals of tax expenditures are as diverse as the federal budget. Some, like accelerated depreciation, are intended to spur business investment, while others, such as the premium tax credit, help American families afford health insurance premiums. According to JCT, the largest category of tax expenditures is for commerce and housing, followed by those for income security and health.
4) Most tax breaks apply to individual income taxes.
Individual income tax expenditures totaled $2.0 trillion in 2025; tax breaks for corporations amounted to $264 billion. The largest tax break related to individual income taxes was for exclusion of pension contributions and earnings and individual retirement arrangements, which was responsible for $383 billion in revenue loss. The most costly corporate tax expenditure was the credit for and expensing of research activities, costing the federal government $74 billion in tax revenues.
5) Nearly half of higher-income taxpayers itemize their tax returns.
Taxpayers with higher income were much more likely to itemize deductions on their federal tax returns than take the standard deduction. The Internal Revenue Service (IRS) recommends taxpayers itemize deductions when the total amount of allowable itemized deductions is greater than the standard deduction. As a result, high income taxpayers are better able to take advantage of tax breaks and reduce their tax liability.
6) Of the three most common deductions, a majority of the benefits go to high income taxpayers.
The most frequently claimed deductions are those for state and local taxes, charitable contributions, and mortgage interest. JCT estimated that in 2025, 84 percent of the tax benefits from those three deductions went to taxpayers with incomes over $200,000. The deduction for charitable contributions was the most inequitable deduction of the three, with $66 billion out of the total cost of $72 billion going to the highest income bracket.
7) Most refundable tax credits support children and healthcare.
Some tax credits are refundable, meaning that eligible taxpayers can receive funds in excess of their tax liability. The three largest refundable tax credits — premium tax credits, the earned income tax credit (EITC), and the child tax credit (CTC) — account for 95 percent of the refundable portion of credits. Those refundable credits help taxpayers afford health insurance coverage and ease the financial burden associated with raising children. Premium tax credits help families purchase health insurance coverage through state and federal marketplaces. They were the largest refundable tax credit in 2025 with a refundable portion of $116 billion, which made up 86 percent of the total cost. The EITC and CTC are intended to help families with children and can help alleviate financial stress, lower child poverty rates, and support children’s development. In 2025, the EITC had a refundable portion of $56 billion, which made up 84 percent of the total credit. The refundable portion of the CTC was notably smaller — $48 billion, which was 37 percent of the total credit.
8) The cost of tax breaks is projected to increase over the next four years.
The cost of tax expenditures increased by $296 billion in 2025 over the last year, and JCT estimated that the cost will continue to grow over the next four years. In fact, the cost of tax expenditures grew 15 percent. That is more than:
- Social Security (8 percent),
- Medicare (14 percent),
- Medicaid and other health (7 percent),
- National defense (5 percent), and
- Net interest (10 percent).
That growth was accelerated by new and enhanced tax breaks enacted through the One Big Beautiful Bill Act.
Conclusion
Tax expenditures are the most costly “program” for the federal government, causing revenue loss totaling $2.2 trillion in 2025. Over the next four years, the JCT estimates that they will only become more expensive. As policymakers consider reforms to federal taxes and the U.S. budget, tax breaks are a key piece of the puzzle for fixing the imbalance between spending and revenues.
Image credit: Photo by Zach Gibson / Getty Images
Further Reading
10 of the Largest Tax Breaks Explained
Tax breaks totaled over $2.0 trillion in 2025. That’s more than the government spends on Social Security, defense, or Medicare and Medicaid.
Budget Basics: What Is the Child Tax Credit?
The CTC provides assistance to families with children, and while it represents a relatively modest part of overall government spending, it is one of the largest tax expenditures.
Budget Basics: Tax Expenditures
Tax expenditures can come in the form of exclusions, exemptions, deductions, and credits.