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THE TAX LAW SOLVES ALL

September 28, 2007

A good article in Forbes points out how politicians of all stripes seem to think the tax law can solve just about any public policy problem. President Bush and most of the presidential candidates have proposed new targeted tax gimmicks to buy votes. These range from health insurance tax credits to credits for "workers" and special breaks for old folks. Meanwhile, the Senate Finance Committee has just come out for new tax breaks for conservation, endangered species, and intercity rail.

Why tax breaks?

"Republicans buy into it because they like tax cuts, and Democrats buy into it because they want new programs. But it has the same effect as direct spending, and it's more wasteful,'' argues Len Burman, director of the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution. Burman, a former Clinton administration treasury tax official, adds that the proclivity of the Clintonites to push their favored programs through tax credits "used to drive me crazy."

Why do they stink? The article points out the main reasons:

One problem with all these tax breaks is complexity; there are now 11 different tax breaks for higher education alone, each with its own rules for who can claim it and for what. A less obvious problem with government by tax credit was highlighted in a little-noticed House Budget Committee hearing also held last week: Congress and the executive branch have made virtually no attempts to monitor whether all these tax gee-gaws get to the right people or promote the ends they're supposed to.

There is an even more fundamental problem than complexity: there is no hope that the economic illiterates we elect to congress could better direct the nation's economic resources through targeted tax breaks than the rest of us would making our own decisions with our own money.

Hat tip: Tax Policy Blog

Related: Our Pimpin' Senator

Tags: tax credits.tax incentives.tax policy.