The economist Eric Toder has pointed out that the largest corporate tax loopholes also happen to be among the most politically popular. They include the tax breaks for new machinery and for research and development. The policies don’t seem like corporate giveaways — though, to some extent, they are — as much as they seem like efforts to create jobs.
A version of this same problem exists within the tax code for individuals. Arguably, it’s worse. In Sunday’s Times Magazine, I have a column looking at the three largest tax breaks. All of them apply to individuals, not companies.
No. 1 is the tax exclusion for employer-provided health insurance. Last year’s health overhaul will start to shrink this loophole in coming years, but the pace will be slow. And the political fight was terribly bruising. Both labor unions and Republicans opposed the measure (which was often called the Cadillac tax).
Nos. 2 and 3 are the mortgage-interest deduction and the tax break for 401(k) contributions. None of these loopholes does a cost effective job of fostering the social goals they are meant to. And all benefit upper-income households — who have received the largest pretax raises in recent years — much more than lower-income households.
If Democrats and Republicans can come together to reduce these tax breaks, which will simplify the tax code and bring down the deficit, it will be very good news. It will also be surprising.
Article source: http://feeds.nytimes.com/click.phdo?i=bcb91cb7fc7fcf8989280711038d6425
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