Jacob Sullum

A constantly changing tax code also creates uncertainty about the future, which distorts economic decisions. Tax breaks themselves are often designed to distort economic decisions, although that is not the way their advocates put it.

Even when tax breaks work as intended, they are based on the dubious premise that politicians can allocate resources better than the market can. And they frequently have unintended side effects, such as the inflation caused by provisions favoring home ownership, higher education and employer-provided health insurance.

Only by eschewing such meddling can legislators hope to achieve the comprehensive tax reform that the president claims to favor. They also have to stop pretending that only "the well-off and the well-connected" will be affected. The biggest tax expenditures include the exclusion of medical benefits from taxable income, the mortgage interest deduction, and the deduction for state and local taxes -- hardly breaks that are enjoyed only by the wealthy.

But the same people who stand to lose treasured middle-class tax breaks will also benefit from lower rates. "If Congress were to eliminate all tax expenditures," Olson estimates, "it could cut individual income tax rates by about 44 percent and still generate about the same amount of revenue." By treating tax reform as an opportunity to raise taxes, Obama risks the enormous benefits such a deal promises.


Jacob Sullum

Jacob Sullum is a senior editor at Reason magazine and a contributing columnist on Townhall.com.
 
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