> Loopholes are often deliberate ways of encouraging behavior with money.
I don’t buy this. There is an easy way to encourage behavior with money. Give people money in exchange for the behavior.
If the goal is to encourage someone to buy a house, then pay them to buy a house.
The reason politicians don’t do this is because this lays bare all the costs associated with the incentive. Whereas with tax loopholes, they can understate it using whatever assumptions they want.
The tax deduction method allows for loopholes to open up, as well as discrimination by way of making it complicated, and understatement of costs. A straight cash incentive, on the other hand, reduces the avenues of corruption, has a transparent cost, and does the job just as well.
Two thoughts without getting into the morality or ethics of existing law: The legal standard for giving money is different than taking money. A tax incentive that is legal (i.e. mortgage interest deduction) would be illegal as a giveaway (giving money to only taxpayers with mortgages) as it would fail equal protection under the law. Second, often times tax incentives help avoid having the government use taxpayers as the bank. For example, if I take deductions for my dependents on my w-2, I have less money taken out of my paycheck. The other way around, no loopholes, would a) discourage having dependents and b) would force me to act as the bank for the government.
> A tax incentive that is legal (i.e. mortgage interest deduction) would be illegal as a giveaway (giving money to only taxpayers with mortgages) as it would fail equal protection under the law.
This is a good thing, exactly the type of corruption that needs to be eliminated.
>For example, if I take deductions for my dependents on my w-2, I have less money taken out of my paycheck. The other way around, no loopholes, would a) discourage having dependents
The other way around would be to pay you for having dependents. I do not see how that would discourage having dependents.
>and b) would force me to act as the bank for the government.
I do not understand what acting as a bank for the government means.
"This is a good thing, exactly the type of corruption that needs to be eliminated."
I'm not sure this is corruption. Encouraging people to buy a home instead of rent is largely viewed as a positive thing. Helping people afford to have kids is a good thing. Encouraging people to favor green energy is a good thing. Encouraging people to buy a giant SUV like we did in the 90s and 00s? Not as good.
"I do not understand what acting as a bank for the government means."
I would pay more in tax (no deduction) and have to wait for the government to pay me for the kids. They would be taking a loan out of every paycheck. Incidentally, the current income tax system where employers withhold and you get a refund for overpayment is a form of banking on taxpayers. Allowing people with dependents to declare them and reduce the amount withheld is very helpful to lots of not-so-wealthy people's personal cash flow.
>I'm not sure this is corruption. Encouraging people to buy a home instead of rent is largely viewed as a positive thing.
A mortgage interest tax deduction rewards people who purchase a home by borrowing money. The more you borrow, the more you are rewarded. It does not reward purchasing a home. It also disproportionately rewards people who are able to borrow money for a home, and punishes those who cannot, such as descendants of slaves who may not have grown up with the necessary resources to establish the necessary income and credit in order to borrow. Or get past the redlining. And last, but not least, it's a handout to the mortgage banking industry who now has a subsidy for the product they sell.
This simple example shows how easily deductions are corrupted. It's not even really encouraging people to buy a home, as that would have been a simple deduction for a home's purchase price. It's encouraging people to borrow to buy a home.
That's all leaving aside the separate debate of whether or not the government should be rewarding home purchases or not.
>Helping people afford to have kids is a good thing.
How is a deduction/credit on taxes anywhere near the optimal way to achieve this? The government can simply give people cash if it wanted to. The government could provide better parental leave if it wanted to. The government could provide healthcare if it wanted to. A $2k tax credit and a $3k deduction for childcare is far down the list of things that make kids affordable.
>Encouraging people to favor green energy is a good thing.
Or we could be more straightforward and tax fossil fuels for the externalities they cause, thereby raising the price of fossil fuels and making green energy a more sensible option to choose. But that would be bad for our resource consumption driven economy that depends on increasing consumption to meet the budgeted increases in revenues to pay for the ever accumulating debt.
>I would pay more in tax (no deduction) and have to wait for the government to pay me for the kids. They would be taking a loan out of every paycheck. Incidentally, the current income tax system where employers withhold and you get a refund for overpayment is a form of banking on taxpayers. Allowing people with dependents to declare them and reduce the amount withheld is very helpful to lots of not-so-wealthy people's personal cash flow.
This is all clerical. There's no reason the government can't electronically deposit money into your account every week or 2 weeks.
I really don't see any value in debating ethics here. Tax policy is no different than spending policy - it's a tool and can be wielded for better or worse. Sometimes, government gets it right. Other times not. Governments, democracies especially, are made of humans.
I don’t buy this. There is an easy way to encourage behavior with money. Give people money in exchange for the behavior.
If the goal is to encourage someone to buy a house, then pay them to buy a house.
The reason politicians don’t do this is because this lays bare all the costs associated with the incentive. Whereas with tax loopholes, they can understate it using whatever assumptions they want.
The tax deduction method allows for loopholes to open up, as well as discrimination by way of making it complicated, and understatement of costs. A straight cash incentive, on the other hand, reduces the avenues of corruption, has a transparent cost, and does the job just as well.