Tax Breaks And The Deficit

The myriad little tax shelters, breaks, loopholes and hidden subsidies in the absurdly complex tax code do two things: they distort the market with political, rather than economic, incentives; and they cost a hell of a lot of money. They are a form of spending, however disguised they are as tax cuts. This graph (via Ezra) really does bring this home:


What surprised me: how much of this is non-corporate. And much of the tax breaks go to the relatively well-to-do:

Adding to their inefficiency, many tax expenditure provisions principally deductions, exemptions, and exclusions tie the tax subsidies they provide to the marginal tax rate of the beneficiary.  The amount of the tax benefit provided increases with income, with the wealthiest households receiving the largest tax subsidies.

There is an obvious, rough solution to the US debt crisis: end these tax breaks (except for philanthropy), simplify and lower tax rates (but in a manner that actually raises net revenue), means-test social security, extend the retirement age, slash defense spending, and focus on the cost-cutting measures already embedded in Obamacare.

It's one of those solutions - like the two-state answer in Israel - that is as obvious as it is apparently impossible.