Will the 1040 Be 3 Pages Next Year?

July 26, 2008

Once again, the United States Congress is making the tax code worse. Not that it should surprise any of the readers of this blog. Members of Congress, however stupid their policies may be, just want to appear as if they are doing something right now as it relates to housing. And if that means making the tax code more complicated and more distortionary and more discriminatory, then so be it.

The housing bill that Congress is set to pass and the President is now willing to sign is set to add a number of lines to the standard 1040, including a deduction for property taxes paid that will likely be in the adjustments section yet only available to non-itemizers (above-the-line deduction) or beneath or part of the standard deduction. And then there is the new credit for homeowners that must be repaid in future years. It’s essentially an interest-free loan administered through the tax code, as if the federal government doesn’t have any entities that subsidize and administer borrowing for housing already.

Also, there will likely be a couple of additional lines for the economic stimulus package that went out earlier this year due to the fact that some who didn’t claim it yet will be able to “apply” for it on next year’s return.

So you can count on probably around four new lines on next year’s 1040, which could force it to finally be 3 pages, unless the IRS merges some of the credits and deductions together as it has done in the past. Or maybe the font next year will be smaller.

Either way, it’s getting ridiculous. A member of Congress perceives a problem. And he/she immediately thinks: “Let’s use the tax code to try to solve that problem.”

I don’t know why we have the number of cabinet departments we do. At the current pace, every government building in Washington may be a branch of the IRS in 50 years given that Congress appears willing to implement every new social policy through the tax code. As Bradford famously showed, a large fraction of the military’s budget could be administered through tax preferences if it wanted to. While such a demonstration was largely tongue-in-cheek, as government as consistently shown, what seems ludicrous today will be policy tomorrow.


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