Read an interesting piece by my favorite economist in the New York Times this morning (no one needs to point out the odd-ness of having a 'favorite economist' to me). Mankiw discusses how the Simpson-Bowles plan aims to reduce the deficit by eliminating 'tax expenditures', or many of the credits we receive for doing certain things that may or may not actually be economically positive for the nation's health. Specifically, the mortgage interest deduction.
Mankiw describes snipe hunting being something the nation decides it wants to encourage, likely because the national snipe hunting association has an army of lobbyists and not necessarily because the hunting of more snipe will help the country in any meaningful way. To encourage this great snipe hunt, the congress fights over whether to send people a $100 check for each snipe caught, or give them a $100 tax credit for each snipe while ignoring the fact that they're essentially arguing whether the glass is half full or half empty while the rational person still can't figure out why all the non-snipe hunters need to pay for the snipe hunters to snipe hunt.
Personally, I think the Simpson-Bowles plan does a great job at walking the line between the two political camps that favor half full or half empty while actually solving the issue of massive government deficits. I also read a really interesting piece in Newsweek about this very issue and how Obama may have the opportunity to do what the British are currently doing and get sensible about the economic reality and make financial common sense an election issue :
http://www.newsweek.com/2010/11/13/what-obama-needs-to-do.html
Spending needs to be cut, tax receipts need to increase (though marginal tax rates don't necessarily need to). At some point this country will have to either reconcile these two positions and use the glass of water at 50% of capacity to swallow the bitter pill of economic reality and the sooner it can be done through compromise the better.
As a homeowner that gets a nice tax refund each year thanks to the mortgage interest deduction, I still support the Simpson Bowles plan because it will be good for the country. As people are finally starting to realize after this housing bust, your home is not your primary investment and it shouldn't be. Keeping corporate tax rates high at the cost of subsidizing home purchases over renting causes capital to be moved away from a place where it will be used more effectively to boost the economy to where it will be used less effectively, and even encourage the irrational purchasing of homes by many subprime borrowers that led to this financial crisis.
Many of these tax expenditures that people think are good only apply to certain people. For example - many of us in business school are taking on student loan debts to pay for school. Some of us will get to deduct the interest on those loans, but many will not because typically people coming out of business school will make more money than other majors. If you make $75,000 a year, you get no student loan deduction at all, and it starts becoming a smaller deduction at $60,000 annually. We talk all day long about encouraging more people to go to college, specifically in the STEM (Science, Technology, Engineering and Math) categories, but most of those graduates working in the private sector won't get any student loan interest deduction - so the tax expenditure isn't doing what it should be doing. Rather than constantly try to fix these hundreds of programs meant to encourage something that may or may not be worth encouraging - we rid ourselves of them altogether, but lower the marginal tax rate to everyone while at the same time reducing the deficit.
Is it a tax on the middle-class? Maybe, but who said the middle class has to own homes? We are letting a notion about home ownership being a source of economic stability take over while ignoring cause and effect. Are homeowners better off because they're homeowners, or are they just naturally better off and homeownership is just something that people that are better off do? If subprime borrowers weren't factoring in big tax refunds from a mortgage interest deduction, how many would have pursued ownership at any cost?
I attended a party with a coworker who works in the Career Planning Office. He stated that there are over 100 employment opportunities, both internships and permanent positions, that were yet unfilled. I was taken aback. I said, "None of those positions are in accounting, are they?" To which he smiled and said, "Oh, no. With the accounting students, all I had to do was sit back and watch."
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