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May 31, 2006

Deductible Discrimination

I highly recommend Daniel Gross's takedown of Greg Mankiw's prescriptions for what economically ails us. I'd add that in addition to endorsing the blue-state penalization plan that ends the deductibility of state and local taxes, it's worth noting that another idea from the President's tax commission, ending the deductibility of employer-based health insurance, is curiously absent from Mankiw's op-ed. Strange, a the rationale is precisely the same for both tax changes. Mankiw writes that "[u]nder current law, if one town enacts high local taxes to finance a municipal pool while a neighboring town does not, the first town gets a federal subsidy at the expense of the second. That outcome is neither efficient nor equitable." Meanwhile, under current law, if an employer purchases health insurance, he gets a federal subsidy at the expense of an individual purchasing health insurance. It's not clear why subsidizing employer-based health insurance at the expense of individuals is equitable or efficient, but it a) cuts against corporations and b) is politically popular in places Republicans need votes, so Mankiw doesn't mention it.

May 31, 2006 | Permalink

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Hey, how about the mortgage interest rate deduction? Renters are clearly disadvantaged versus buyers, and that's inequitable too, as well as inefficient (it encourages urban sprawl and higher energy use). And the property taxes are deductable too for buyers only.

Well in the mortage intesest case, the argument is based on "The Common Good", a concept nearly foreign to Republicans in speech or writing. They do wrap some stuff in convenient family values language though, when it suits their ideology.

Mankiw doesn't seem familiar with the national legal basis of one level of government not taxing the taxes of another level - a long-followed and very conservative federalist principle.

It takes nerves of titanium (steel not being strong enough any more) to thread ones way through conservative Republican ideology on when federalism should be respected and when not, or, for that matter, why they never mention 'the common good' as a basis of policy. Does that sound too liberal for them?

Posted by: JimPortlandOR | May 31, 2006 6:11:41 PM

Nah, sprawl exists because we Americans love our single-family detached utopias. Condo mortgages are just as deducitible as those on houses.

That said, it clearly should be a credit that tapers off with higher income, rather than a deduction that's eventually capped at some point.

Mankiw's just a whore to power. I stopped reading his blog when it became clear that he was usin his prodigious intellect almost entirely in the service of selling ideology.

Harvard should be proud.

Posted by: wcw | May 31, 2006 7:46:11 PM

"blue-state penalization plan that ends the deductibility of state and local taxes"

What is interesting is how the high-tax blue states usually have the nation's highest household incomes, education levels, etc. In most cases, those high taxes subsidize education systems that deliver better outcomes than Georgia, Mississippi, Texas and most of the rest of the red states.
However, given that Bushco is no longer interested in creating jobs for Americans that will pay above the minimum wage - an elementary school education from PS 101 in Crackerjack, Alabama should do just fine.

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