Tax Deductions Economists Want to Eliminate

Ben Casselman: “Well-structured tax incentives can promote behavior the government wants to encourage, such as saving, working or having children. But the key phrase there is ‘well-structured’—in practice, tax laws often end up having unintended consequences.”

“At the top of many economists’ hit list is the mortgage-interest deduction. If you have a mortgage on your home, you don’t have to pay taxes on the interest on that loan… Economists have all sorts of problems with the mortgage-interest deduction. For one thing, because wealthier people own bigger homes with bigger mortgages, the benefit disproportionately benefits the rich.”

“Next up on economists’ chopping block: the deduction for state and local taxes. Right now, if you pay taxes in your home state, you can write them off on your federal tax return. That might seem reasonable — you’re already paying taxes once! — but from the federal government’s perspective, state taxes really aren’t much different from any other expenditures. Your taxes pay for roads, schools and police protection, the same way your rent pays for housing.”

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