Monday, April 9, 2012

$1 Trillion In Tax Loopholes

I don't call these loopholes, since my definition of a loophole is a way to avoid taxes that is likely not intended by congress (i.e., an exploitation of an unintended structural weakness); these are, rather, tax expenditures as Steve Dean noted in his post yesterday, and as NPR explains.  

NPR invites us to:
Imagine a program where the government sent an annual check to homeowners with mortgages. The bigger the mortgage, the bigger the check. Checks for rich people would be bigger than checks for the middle class. Also: Checks for people with mortgages on vacation homes! 
It's hard to imagine a program like that getting much support in Congress these days. But, through the mortgage-interest tax deduction, the government does something like this every year. 
...Tax expenditures will cost the government somewhere around $1 trillion this year. That's more than the government will spend on Medicare or defense. The graphic ... lists just a few tax expenditures; this report (PDF) from the Congressional Joint Committee on Taxation has a much longer list.
Then NPR proposes that "If economists ran the tax code, there would be far fewer of these loopholes. Taxes might be higher or lower than they are now. But either way, the tax code would be simpler."  This is preposterous.  It imagines economists as some mythical sector that is completely devoid of social, cultural, political, or philosophical thought.  I often link to Dierdre McCloskey's work as the best antidote to both the proposed existence of such a sector and the idea that anyone would invite the rule of such sector should it possibly exist.

NPR concludes with the adage that tax expenditures are unnecessary and inefficient because the government could just hand out money to those it wished to help, through direct spending.   Let us be clear.  The government in America will not hand out cash, even if it is the equivalent of a tax expenditure, and even if by anyone's view, even (gasp) an economist's, the outlay would be desirable from an economic, political, social, and cultural perspective.   The direct spending well is completely poisoned in America.  A NY Times weekend story on the ever-diminishing welfare rolls is the latest illustration of this cultural phenomenon.

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