The sequester (pdf) cut approximately $85 billon from Fiscal Year 2013 spending—half from reductions in defense spending and half from elsewhere in the budget. OMB calculated (pdf) that it would result in a 5 percent reduction in nondefense discretionary spending—funding for programs like education and housing assistance, veterans’ benefits and services, medical and scientific research, and health and safety regulations.

I have long argued that cuts to government spending are uncalled for, given the lack of a robust economic recovery. However, if you are searching for sensible ways to shrink the deficit, there are better alternatives to sequestration. For example, we could eliminate the nondefense discretionary spending cuts in the sequester and shave $26 billion annually from the deficit by eliminating or closing a handful of tax loopholes.

Tax loopholes, formally known as tax expenditures, reduce tax revenues by over $1 trillion every year. There are many reasons to keep tax loopholes in the tax code: some are very popular (e.g., the mortgage interest deduction), some provide incentives to socially beneficial behaviors (e.g., the earned income tax credit), and some are technically difficult to change (e.g., the exclusion for employer retirement plans).

It is rather easy, however, to come up with a handful of tax loopholes that could be modified or eliminated to replace the sequester. As an example, this chart compares the nondefense discretionary spending reduction due to the sequester with the revenue that could have been gained by eliminating five tax expenditures for fiscal 2013, which are described below. Of course, there will be disagreements among reasonable people on which tax expenditures to eliminate, which ones to modify, and which ones to keep. Nevertheless, when faced with a decision, Congress took both the sequester and the tax loopholes, rather than trading off the sequester for the elimination or modification of some tax loopholes.

The five tax expenditures are: