The other day, I griped in the comments section of The Atlantic about Obama treating the removal of the tax exemption for investment income in 529 plans and a bump in the \u201crefundable tax credits\u201d as effectively equivalent, and I got replies to the nature of \u201cthey\u2019re all tax expenditures, and all equally worthy or unworthy.\u201d \u00a0So I thought it would be useful, in the context of a tax reform that hopes to simplify taxes by swapping special benefits in favor of lower marginal rates, to think about the types of so-called \u201ctax expenditures.\u201d<\/p>\n
Here\u2019s my list:<\/p>\n
1) Out-and-out tax credits, especially when a matter of \u201crefundable tax credits,\u201d are functionally no different than government benefits being doled out. \u00a0Example: \u00a0child tax credits or tax credits for purchasing a hybrid or electric car. <\/p>\n
2) Tax-deductions that are wholly unconnected to the nature of the income being taxed are suspect, too. \u00a0 Example: deductions for mortgage interest or local property taxes.<\/p>\n
3) Tax-deductions that are directly related to the cost of earning income. \u00a0Really, these shouldn\u2019t even be up for debate, but some are: \u00a0most significantly, the cost of child daycare should be a direct deduction from the secondary (lower) earner\u2019s income.<\/p>\n
4) But differing tax treatment for different types of income are no more \u201ctax expenditures\u201d than are different tax brackets for different levels of income, are they? \u00a0The biggest issue here is, of course, different treatment for investment income, and, as a subcategory, investment income dedicated to a specific long-term savings cause (retirement or education). <\/p>\n
Now, I\u2019d be willing to chuck the lower rates for capital gains if it was balanced with inflation-indexing: \u00a0given that surely virtually anyone with capital gains is doing their taxes on a computer, it wouldn\u2019t be that hard to add into the cost-basis calculation an indexation that ups the cost basis to current dollars. \u00a0We also could restructure interest income reporting to split interest up into \u201cup to CPI\u201d and \u201cin excess of CPI.\u201d \u00a0And dividends? \u00a0Well, if it\u2019s double-taxation to tax dividends in personal income tax and corporate tax both, then we could permit companies to pay dividends out of pre-tax earnings, then make them taxable at the individual level. <\/p>\n
Anyway . . . just a few thoughts. \u00a0What do you think?<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"
The other day, I griped in the comments section of The Atlantic about Obama treating the removal of the tax exemption for investment income in 529 plans and a bump in the \u201crefundable tax credits\u201d as effectively equivalent, and I got replies to the nature of \u201cthey\u2019re all tax expenditures, and all equally worthy or […]<\/p>\n","protected":false},"author":2209,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[38],"class_list":["post-70","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-tax-reform"],"yoast_head":"\n