A Tax Credit for Every Problem

September 27, 2007

Janet Novack has a terrific article in Forbes Magazine on how tax credits have become the new way for politicians in both parties to spend, spend, spend…albeit in a way that is designed to look like a tax cut. From Forbes Magazine:

In these divisive days, politicians of all stripes do seem to agree on one thing–tax breaks are the best (or at least, most expedient) way to accomplish nearly everything, short of fighting a war. (And there are special tax breaks for the men and women fighting too.)

The uninsured? President Bush wants to tackle the problem with a $15,000 per family health insurance deduction. The universal insurance proposal Sen. Hillary Clinton (D-N.Y.) offered last week included a new refundable tax credit to help moderate income folks pay for health insurance and a new tax credit to help businesses with 25 or fewer employers provide insurance. Sure, there’s a big difference here. Bush’s deduction would only help those who actually owe taxes, and is worth the most to higher-income folks. Clinton’s credit is tilted towards middle and working class people and would be paid as a refund to those too poor to owe taxes. But both plans use the tax system to achieve their aims.

Clinton wasn’t the only Presidential candidate proposing tax breaks last week. Rival Sen. Barack Obama (D-Ill) proposed a new tax credit for workers, a new mortgage interest credit for those who don’t itemize and a special tax exemption for up to $50,000 in income just for senior citizens, who already get a larger standard deduction than other folks.

The article goes on to mention how this trend has grown over the past thirty years, and the article also gives numerous other ridiculous examples of the tax code being used as a spending tool. It also includes this quote from the Urban Institute’s Len Burman, who used to work on tax policy under the Clinton administration:

“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.”

A point worth noting is that had the same questions been asked to any other public finance economist, you’d likely get the same answer, regardless of whether he/she worked under Clinton, Reagan, or Bush. There is broad agreement among those who study tax policy that the primary purpose of the tax system should be to raise revenue, not as a way to spend money without looking like you are spending money.

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