Harvard economist Martin Feldstein says the government should lower the amounts taxpayers can deduct for mortgage interest, home improvements and green cars.
"At their worst, such tax expenditures create incentives for wasteful borrowing and spending; they have been factors in the mortgage crisis and the rising cost of healthcare," Feldstein writes in The New York Times.
"Tax credits for buying solar panels or hybrid cars are just like government spending to subsidize those purchases."
According to Feldstein, these tax credits collectively increase the budget deficit by more than all other nondefense spending combined, other than Social Security and Medicare.
“And unlike those direct outlays, these tax expenditures are not subject to annual review as part of the appropriations process,” he says. “Once they are part of the law, they automatically continue and become more costly with time.”
Reducing the budget deficit and stopping the explosion of our national debt will require more tax revenue as well as reduced government spending, says Feldstein.
However, the need for more revenue would be much better achieved by capping tax expenditures rater than by raising tax rates.
In addition to houses and cars, the exclusion from employees' taxable incomes of employer payments for health insurance amounts to a subsidy for insurance companies, Feldstein notes.
And the deduction for interest on residential mortgages, probably the best-known tax expenditure, “amounts to a giant subsidy for homeownership," he says.
A recently published USA Today/Gallup poll showed that 61 percent of Americans oppose eliminating the mortgage interest tax deduction to either lower the overall tax rate or as a way to reduce the federal deficit.
In fact, the poll showed that a majority of Americans were against eliminating any tax deductions.
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