NPR has a great story and audio posted for 1/13/11 -"Can Washington Break Its Tax-Break Habit?" by Scott Horsley. It includes a statement from Dr. Laura Tyson who previously served as an economic advisor to President Clinton. She notes that while special tax rules make the tax system more complex and reduce government revenues, they can come about because someone wants a special subsidy or financial award (such as for college students) and finds that it is easier to create a tax credit than to try to increase the federal budget allocation for Pell grants.
This is a reminder that tax expenditures - special tax rules that are not necessary for measuring the tax base, are really a form of spending. To further explain, for an income tax for individuals, you just need to measure income. There is no need for any deductions. BUT, what about the reality of "ability to pay" and ensuring that some portion of one's income is available to live on? The standard deduction and personal exemptions help address this matter and so should be elements of any income tax. But do we also need tax breaks for higher education and mortgage interest as well as exclusions for employer-provided health insurance? Such deductions also raise equity issues. For example, why those deductions and not ones for credit card interest and costs of your child playing sports? Also, deductions and exclusions are worth more (are greater subsidies) for those in the higher income tax brackets.
The Joint Committee on Taxation publishes an annual report of tax expenditures (here) and most states do as well.
I have written about this before in my reports and blog and even in 2008 in the SF Chronicle - 'Spending problem?' - some of it's hidden in our tax laws.
What do you think - how should tax expenditures fit into federal and California tax and budget reforms?
Saturday, January 15, 2011
Good NPR story on tax breaks (expenditures)
Tags:
#tax expenditures
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