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IT'S NOT ALWAYS A TAX PROBLEM

February 17, 2007

We've noted the tendency of lawmakers to consider the tax law a sort of Leatherman Tool of public policy - it can do anything! Unfortunately, the more things the tax law does, the worse it is at its essential function: raising the revenue needed to support essential functions of government.

The TaxProf notes an important study of one aspect of this problem, Implementing Disaster Relief Through Tax Expenditures: An Assessment of the Katrina Emergency Tax Relief Measures, 81 N.Y.U. L. Rev. 2158 (2006).  From the abstract:

Unprecedented before 2001, tax relief targeted to a disaster in a specific geographic region has now been established on two occasions--in the wake of the 9/11 attacks and in the aftermath of Hurricane Katrina. This Note argues that, in a disaster, both the vulnerability of lower-income taxpayers and the weaknesses of the Internal Revenue Code as an instrument for social programs are amplified.

Tax policies implemented in response to a disaster will be far too slow to help in the immediate recovery and are impossible to design precisely to help where its most needed. Once in place, they are hard to remove. But bad idea or not, the tendency towards spastic policymaking in the wake of disaster gives us reason to expect more tax responses after whatever disaster comes next.

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