Happy Act: The Poster Puppy for What's Wrong with the Tax Code

Nothing I have written in more than two years at TaxVox has attracted more attention than my August, 2009 piece on the Happy Act. This bill, sponsored by Representative Thaddeus McCotter (R-MI), would allow people to deduct up to $3,500 from their taxes to subsidize the cost of, no kidding, pet care.

The issue has since gone viral. TaxVox has received dozens of comments—most of which strongly support the bill but a few that see it as just about the dumbest idea in the world. Over the weekend, the Sunday supplement Parade magazine published a piece. USA Today has written about it and the ASPCA recently asked its members to write their representatives in support of the bill.

I am the owner of, you’ll pardon the expression, a very happy dog we rescued about four years ago. She brings us great joy. There is absolutely no way the government should be subsidizing this joy.

The Happy Act is, in fact, the poster puppy for all that is wrong with the tax code. It is the most ridiculous use of tax dollars to promote social policy I can imagine. It will add billions of dollars to an already out-of-control budget deficit. Other than that, it is a terrific idea.  

To understand why the Happy Act is so wrong-headed, consider the following:

First, Americans will spend more than $45 billion this year on their dogs, cats, and iguanas, according to the pet products industry. Remarkably, only about 5 percent will be to buy the animals. And only about one-quarter will be spent on vet services. The rest goes to food, clothes, toys and other supplies, and grooming and boarding.

Second, the revenue loss to the Treasury of targeted tax subsidies like the Happy Act—what are usually called tax expenditures—will soon exceed $1 trillion-a-year, according to TPC. These are no different from government spending, except that many Americans somehow feel better thinking of them as tax cuts. And most are well-intentioned efforts to improve access to health care, savings, housing, and the like. The trouble is, they are almost always a very inefficient use of dollars and often lead to nasty unintended consequences.   

Third, the budget deficit this year is expected to exceed $1.5 trillion. The Happy Act would give away more money we don’t have.

And there is something else to keep in mind. With tax subsidies will inevitably come regulation. Just imagine:

What is a qualified pet? Should allegedly dangerous dogs such as pit bulls be eligible.  How about animals some consider endangered?

What owners should get the deduction? The tax break won’t help those who take only the standard deduction, and even among itemizers, high-income families would get a much bigger tax break than those with lower incomes. And it won't do a thing for most people who are at risk of giving up pets because they lose their jobs. If you make no money, you pay no tax, and deductions do you no good.  

And how about those who rescue dogs? Shouldn’t they get a bigger subsidy than those who spend thousands of dollars on some purebread? And what about people who abuse their pets? Tax subsidies will only help them acquire more. Do we want the IRS checking on how we treat Fido?

The Happy Act may be the best reason I know to toss out these targeted tax breaks with the kitty litter and use the money to reduce tax rates and cut the deficit. Lower rates allow taxpayers to decide what they want to do with their money, without government interference. We—and our pets—would all be better off that way.