Archive for February 26, 2009

Obama’s Plan to Cap Tax Deductions

To help pay for health reform, President Obama’s wants to limit deductions for high income taxpayers. He’s on to something, but I’ve got some questions about what he’s doing.
This tax increase, sure to be politically contentious, would kick in starting in 2011 and raise about $318 billion over 10 years. That sounds like a lot, but in fact it would only fund about 20 percent of the total cost of the health plan Obama outlined in his presidential campaign. TPC estimated the price of that plan at $1.6 trillion over 10 years.

The Stimulus Act and the Limits of Tax Credits

For years, Congress has preferred to use tax incentives rather than direct spending to encourage investment. Thus, while a home buyer may not care whether she gets a tax credit or a check from HUD, for example, Washington seems to have concluded that the tax subsidy is good while the check from HUD is bad. Never mind that both are, in reality, spending.
This bit of political ledgerdemain has made it increasingly difficult for lawmakers to choose the most efficient way of delivering subsidies. But surprisingly, the current economic mess may be bringing some clarity to this issue.