Deductions For Me, But Not For Thee

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Via a link from Ezra Klein, I skimmed through Yuval Levin’s big piece about reforming the welfare state in National Affairs this morning. I won’t pretend to agree with much of it, starting with the overwrought premise that the country is inevitably going bankrupt and ending with prescriptions that are almost entirely punitive toward the middle class. But all that aside, I was bemused by #1 on Levin’s outline of how to fix things:

It would begin with a simple and predictable tax system, with a broad base and low rates, free of most of today’s deductions and exclusions. The only three worth keeping in the individual tax code are the tax exemption for retirement savings (which are far preferable to universal cash benefits to retirees), a unified child tax credit (to encourage parenthood and to offset the mistreatment of parents in the tax code), and the charitable-giving deduction (since a reduction in government’s role in social welfare must be met with an increase in the role of civil society, which should be encouraged). These three exemptions are directed precisely to the needs of a modern society, and to addressing the three broad failings of the social-democratic welfare state.

This really doesn’t work. If you think, say, that the mortgage interest deduction is bad policy and we ought to get rid of it, that’s fine. Make your case and push to get it repealed. Ditto for all the other tax expenditures in the tax code.

But what you really can’t do is argue that deductions are inherently bad and we should get rid of them all — except for these two or three pet ideas that I really truly think are worth making an exception for. You either think that tax expenditures are distortionary and therefore bad policy in general, or you think that it depends on exactly which ones we’re talking about and prefer to look at them on a case-by-case basis. After all, every tax expenditure in the current tax code is there because someone thought it encouraged some kind of worthwhile behavior that was directed to the needs of a modern society. If you insist that your three exceptions are worthy ones, then you have to accept that other people are going to find worthy exceptions too.

Personally, I’m in the “case by case” camp. It’s always satisfying to take a hard line and demand that the tax code be pure, but human nature just doesn’t seem to work that way. Everyone has behavior they believe should be encouraged or discouraged, and sometimes the tax code is the most efficient way of doing it. I’m happy with efforts to scrape barnacles away periodically, but there’s no point in pretending that the hull is going to stay clean forever. And there’s especially no point in doing it if you yourself have several pet barnacles of your own.

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