Congress is working on the greatest change to the tax code in several decades. They are looking to cut back on tax deductions so they can lower rates. Most people are in favor of this approach as long as they don’t lose their deductions. I would suggest that they look at whether the deduction encourages beneficial behavior and who is subsidizing it. Here are some of the major deductions and my thoughts:
1. Medical expenses – Many people, myself included, have incurred significant out of pocket medical expenses. Although lifestyle can be a factor, many became ill through no fault of their own. I think giving us a little help is a good idea.
2. State and local taxes – I see no reason why people in low income states should subsidize those in high income states.
3. Real estate taxes – Owning a home is a worthwhile goal but I don’t think apartment dwellers and low income homeowners should subsidize high income homeowners.
4. Charitable contributions – Encouraging people to give is definitely in our interest. The deduction should stay.
5. Retirement savings – Many people are unprepared for retirement. Encouraging them to save lessens pressure to increase Social Security. Besides, the taxes are only deferred.
It would be nice to think that Congress is thoughtfully looking at tax policy. Unfortunately, decisions will likely depend on who does the best job of lobbying.