Pethokoukis

Some things to keep in mind when trimming tax breaks

AEI’s Andrew Biggs duly notes in a RealClearMarkets column that all tax increases are not alike. This is particularly true when it comes reducing or eliminating tax breaks, also known as “base broadening. While some tax preferences are pro-growth, like the preferential treatment given to investment incomes, some are not. Biggs:

For instance, the mortgage interest deduction has encouraged Americans to buy bigger houses, but it hasn’t given America a much higher home ownership rate than other countries that lack such a perk. Similarly, the deduction for employer-sponsored health coverage has been a prime suspect in why the U.S. spends so much more on health care than other developed countries. Given the housing bubble and rising health costs, once could argue for limiting these deductions even if budget problems weren’t so pressing.

Also a nice Flash Fact on who gets tax deductions:

Moreover, due to the progressivity of the income tax code, the lion’s share of the benefits from tax deductions flows to the wealthy. For example, the Urban-Brookings Tax Policy Center has reported that capping itemized deductions at $50,000 would raise nearly $750 billion in revenue over 10 years. Ninety-six percent of the new taxes would come from the top 20 percent of taxpayers and 79 percent would come from the top 1 percent.

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