Obama Criticizes Tax Loopholes, Then Seeks to Create More

Today, an Associated Press article released from the campaign trail in New Hampshire detailed Obama’s speech on tax policy to a local restaurant (where no sales tax is charged, by the way).

At a Nashua restaurant, [Obama] renewed his pledge to make the nation’s tax system more fair.

“We’ve got a tax code that’s making things worse. This isn’t an accident,” he said. “Special interests in Washington have carved out a trillion dollars worth of corporate tax loopholes at a time when income inequality is larger than any time since before the Great Depression.”

“George Bush’s tax cuts, for example, went disproportionately to the top 1 percent of the population,” Obama said.

He says his tax plan would give 150 million workers a $500 payroll tax credit, expand relief on mortgage interest, eliminate income taxes for seniors making less than $50,000 and simplify returns so millions could file in less than five minutes.

While Obama is right in his criticism that there are too many tax loopholes, he doesn’t seem to understand that they come in all shapes and sizes. One person’s tax deduction is another person’s loophole. If one defines “loophole” as someone legally escaping taxation on some income source for some reason, then we have plenty of those in the code. And the deduction for home mortgage interest is one of the biggest.

Obama also claims that he wants to simplify the code. Yet expanding the home mortgage interest deduction to more taxpayers and having a $500 payroll tax credit actually goes in the opposite direction. Furthermore, while seniors may save from not having to file a tax return each year, many who end up not having to file will still have to go through much of the work of adding up their income to ensure that they are below that $50,000 income threshold.

While many may disagree with the belief of the candidates on the left that the tax code needs to be made more progressive, even those on the left who are seeking to achieve that goal appear to be putting out tax plans that make it more progressive in the worst possible way. Those who seek to make the tax code more progressive on the Democratic side can do so in a much better and simpler way than expanding deductions and credits for low-income people. They could do so by overhauling the tax system, which does have many deductions and credits that tend to overwhelmingly flow to upper-income individuals. Then they could lower rates significantly for those at the bottom or across the board. Unfortunately, they appear more favorable to trying command economy-like policies where they arbitrarily determine the allocation of resources through arbitrary tax credits paid for by arbitrary tax hikes.