Richest 20 percent get half the overall savings from U.S. tax breaks, CBO says Democrats seized on the new analysis, saying it provides fresh support for President Obama's claim that limiting tax breaks for the rich offers a more sensible path to deficit reduction than sharp cuts to agency budgets, known as the sequester. The sequester, which took effect March 1, will cut U.S. agency spending by roughly $42 billion through Oct. 1. Rep. Chris Van Hollen (Md.), the senior Democrat on the House Budget Committee, noted the recent announcement that schoolteachers of children of active-duty military families at Fort Bragg, N.C., will be furloughed for five days in the fall because of the cuts. "We think it's important to decide whether we want to prioritize education for the kids of our servicemen and women or tax expenditures for the top 1 percent," Van Hollen said. Republicans, too, welcomed the report, saying it sheds new light on potential policy choices as lawmakers in both parties consider a comprehensive overhaul of the tax code. While Democrats want to limit tax breaks to generate new revenue for the government, Republicans want to return the money to taxpayers in the form of a simpler code with lower rates for everyone. "This CBO report will help the American people and their elected representatives in Congress fully understand who benefits from which tax expenditures as we move toward a comprehensive tax overhaul," said Antonia Ferrier, spokeswoman for Sen. Orrin G. Hatch (Utah), the senior Republican on the Senate Finance Committee. The tax code is littered with a profusion of deductions, exclusions and credits that serve to reduce federal tax bills mainly for individuals, but also for corporations. The 10 largest breaks affect individual tax bills and taken together will cost the Treasury about $925 billion in the current fiscal year, the CBO said, making them more expensive than any of the biggest government spending programs - including Social Security, Medicare and the military. According to the CBO, the biggest tax breaks by dollar value this fiscal year are the tax-free treatment of employer-provided health insurance (about $260 billion), preferential rates for dividends and capital gains ($160 billion) and tax-free contributions to retirement savings ($140 billion). Deductions for state and local taxes ($80 billion), mortgage interest ($70 billion) and contributions to charity ($40 billion) are also among the top 10, as is the tax-free treatment of capital gains on assets transferred at death ($50 billion). All of those breaks primarily benefit wealthy households, according to the CBO. Rounding out the top 10 are three breaks that primarily benefit lower-income households: the tax-free treatment of most Social Security benefits ($35 billion), the child tax credit ($60 billion) and the earned-income tax credit ($60 billion). Some argue that it might be reasonable for the rich to receive a large portion of the benefit from federal tax breaks because they pay an outsize share of federal taxes. According to the independent Tax Policy Center, the richest 20 percent of households paid nearly 70 percent of federal taxes last year. But the CBO noted that tax breaks are essentially equivalent to government spending, intended to encourage and subsidize various behaviors, such as buying a home, saving for retirement and giving to charities. The rich are likely to engage in those activities even without such "financial assistance," raising the question of whether that money could be better spent on other priorities.