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SURE I'LL NOT SMOKE FOR $1,000.

June 07, 2007

The Tax Grrrl blog is conducting an interesting thought experiment on tax credits. A reader asked if the Tax Girl would give up eating meat in exchange for a tax credit.

You see, tax policy works exactly that way. The government creates policy based on what it believes provides an incentive for “desired behavior” (mortgage interest, but not rent, is deductible because the government wants to encourage home ownership) and a disincentive for “bad behavior” (cigarette taxes are meant to discourage smoking). And it is often effective. As gas taxes increase, people drive less. As cigarette taxes rise, people smoke less.

Given that’s the way that tax policy works, I thought Sally’s question was a fair question for everyone. So, I created a poll.

Assuming that offering proof would not be onerous, which of the following would you give up in exchange for $1000 tax credit?

The poll asks which vice you'd give up for a $1,000 credit: Meat, Alcohol, Cigarettes, Sex, Television, Driving, Internet, Other, or nothing.

The whole problem with tax credits as a policy tool shows up in the sentence preceding the poll:

And no fair choosing something that you don’t do anyway. If you’re not a smoker, don’t choose cigarettes! That’s cheesy. It’s like my husband giving up watching Oprah for Lent…

Cheesy or not, that's the whole point of the tax credit industry: getting the government to pay you for what you are already doing, or what you already plan to do. Take the R&D credit. You'd have a hard time finding a research project that would clearly have not occured without the credit. In contrast, it would be very easy to identify dozens of "research credit studies" by private consultants, who are paid to visit taxpayers to identify the things they are already doing that they can claim a tax credit for.

Me, I'll give up smoking for $1,000. If I have to actually smoke a cigarette first so I can kick the habit, it's a sacrifice I'm willing to make for the sake of public policy.

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