The Role of Tax Deductions

by Sal on March 27, 2009

in Economy,Politics

There’s an interesting debate going on over at the corner right now over the role of tax deductions from a Conservative point of view.  Jerry Taylor of Cato is arguing that we should, as Conservatives, be against the mortgage deduction and welcome Obama’s scaling of it back because government should not be in the business of dictating social policy, and we should take whatever moves we can to decrease the role of government, even if it amounts to a tax increase (Jerry refers to it as a spending cut).

I’ve given the role of deductions a lot of thought, and I can see the merit to Taylor’s argument in that deductions in and of themselves are a bad idea and not the proper role of government, although I don’t know if I am 100% on-board with that argument.  His acceptance of a decrease in the deduction without other fundamental changes, however, is flawed.

The entire tax code as it exists is balanced on the tax rates and the availability of deductions.  For many people, the elimination of these deductions will create a cost of living increase that will be unsustainable.  I agree wtih Nick Schulz’s position that any reduction or elimination of the mortgage interest deduction should be part of a larger reform of the tax code (for example, the flat tax), but to accept the Obama reduction in the mortgage interest deduction is simply allowing money to be diverted from the people who pay taxes to other social programs that Obama is planning, rather than reducing the size of govenrment.

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