A Nation With Too Many Tax Breaks

[Scuba]

http://www.nytimes.com/2012/03/14/business/a-nation-with-too-many-tax-breaks-economic-scene.html?ref=business

One feature stands out: The roughly $2 trillion pot of federal entitlements mostly benefits lower-income families. But the $1 trillion in tax breaks mostly benefits those higher up the income ladder. Taxpayers in the top fifth of the income distribution get almost $25,000 each, on average. Families earning more than $1 million before taxes receive $447,259 from tax breaks. By contrast, for taxpayers earning $10,000 or less, the average break amounts to $427.

Consider housing. The federal government spent about $55 billion in housing assistance last year, most of it to cover some rental costs for low-income Americans. It gave a further $5.4 billion in tax credits to subsidize low-income housing. But this is just a small share of what the government spends on housing.

To increase homeownership, borrowers can subtract the interest paid on their mortgages from income on their tax returns. This cost the government almost $78 billion last year, more than the entire budget of the Department of Housing and Urban Development. And it is not the only goody. Homeowners can also deduct state and local property taxes from their income tax, at a cost of about $24 billion last year. Allowing homeowners to pocket tax-free much of the profit from selling their homes cost $18 billion more.

Even if one agrees government should spend all this money to get Americans into a home, the deduction for mortgage interest is a lopsided way to allocate it: 76 percent of the total benefit goes to the richest fifth of the population — they have bigger houses and pay higher tax rates — at an average of about $1,952 per taxpayer, according to the Tax Policy Center.

[dkf]

1. Well it makes sense that tax incentives go most heavily towards those who pay the most taxes.

Incentives are meant to influence behavior the government wants to encourage. If they get rid of them then we should be prepared to see less of whatever we wanted to see when we added the Tax break.

Less municipal investment, less charity, less home ownership, those are all things that could be affected should those breaks be eliminated.

On edit: Maybe home ownership as a percent would not be affected but the amount people are willing to pay might be. The mortgage deduction supports higher home prices which helps municipal tax collection and the solvency of Fannie and Freddie.

[Igel]

2. I look at it from the side.

An additional $100k taxes on these folk would be nothing.

Why do we think $100k additional income is all that much? Yet we talk about it as though the government is enriching these people beyond all reasonableness.


For lower-income people, an additional $1000 in taxes is considered an unreasonable burden. But an additional $1000 in taxes is a pittance.

Rule of thumb: I can never be given too much money, and any amount I have to pay is unreasonable. My enemies can never pay too much money, and any amount they receive is unreasonable.

The only thing left to ascertain is the level of unreasonableness in each case.