We said yesterday we’re all for tax simplification.
But we don’t see it happening anytime soon.
That’s because Congress uses the tax code to help achieve its policy goals.
A broad array of deductions, credits and exemptions are in place to encourage (subsidize) certain types of personal, business and investment behavior.
We have the tax deduction for mortgage interest and property taxes to encourage home ownership. There’s no tax deduction for renting a home or apartment.
The various energy credits encourage consumers to purchase energy efficient products.
Municipal bond interest is exempt from federal tax to encourage people to invest in their state and local governments.
The list goes on and on.
So the tax code gets more complicated every time a new tax incentive is enacted into law.
Then there’s the growing debate about replacing the income tax with a national sales tax or valued added tax (VAT).
In the end, I don’t think it’s an either/or issue. I think we’ll likely have both an income tax and some form of national sales tax.
But even if a national sales tax does replace the current income tax, it won’t be all that simple. We’ll still have deductions, credits and exemptions.
Because Congress won’t give up the power it now has to use tax subsidies to achieve its policy goals.
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