Eagle Forum Legislative Alerts

Sunday, March 18, 2012

Tax system has social and fiscal policies

Princeton University professor of political economy Uwe E. Reinhardt disagrees with another economics professor, and writes in the NY Time Economix blog:
To my mind, the best approach would be to abolish the distinction between capital gains and ordinary income altogether and desist from using the tax system for any kind of economic or social engineering.
Other parts of Reinhardt's column are criticized here.

A couple of days earlier, Phyllis Schlafly wrote a column on We Can't Separate Social Policy from Tax Law:
Every part of your income tax return that you will file by April 15 is a manifestation of social policy. The whole concept that those who have more income must pay higher rates of income tax than those with less income (known as a progressive income tax) is a momentous combination of social and fiscal policies.

It's social policy that we can deduct gifts to charitable and religious organizations on our tax return. It's social policy to allow us to postpone taxes on our accounts set up for retirement.

It's social policy to permit homeowners to deduct mortgage payments. Favoring homeowners over renters was a social-policy decision made years ago and locked into the income tax law.

When we elected the great Republican Congress in 1946, it created the joint income tax return over President Harry Truman's veto. This enabled married couples, where the husband was the major breadwinner and the wife a homemaker, to file their income tax return as two equal partners, with each tax bracket, deduction and exemption equal to twice that of a single person.
She is correct. Removing any kind of economic or social engineering may sound desirable, but it is impossible. The only way to do that is to abolish the tax system.

Since social engineering is a necessarily evil part of the tax system, it remains for legislators to decide whether the tax system will be used to promote good policies or bad policies. Tax laws can be pro-family or anti-family, for example.

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