Tax deductions. We’re really into tax deductions, aren’t we? We love to talk about the deductions and write-offs we get. We love to crunch those numbers to the penny so we pay the least amount of taxes. We throw deductions around like they’re the norm.

But I think it’s time we’re honest about tax deductions. I think we’ve become blinded to the fact of what’s really taking place. In reality, they should only be used to encourage people to choose things they might otherwise not do.

For example, the mortgage interest on a home. This encourages people to buy and invest in a home. Home investment on a large-scale keeps our economy healthy due to all the “trickle-down” factors such as maintenance, improvements, purchasing of furnishings and appliances, to name just a few.

You’ll call a painter when you need painting or a plumber when you have plumbing issues. Home-ownership also builds stable communities and keeps a supply of capital {cash} in banks for lending to small business. Over time your home builds a solid long-term investment that works in your favor.

How about charitable deductions? Donations given to charity come straight off your gross income. They stimulate giving and many charitable organizations have thrived and done a great deal of good in our world.

But then something different happened. The government entered the free-market and began a risky experiment. They began giving deductions for the purchase of certain products, all in the name of stimulus or investment in companies.

The consumer got a tax credit meaning there was a deduction to buy certain heating/air-conditioning systems. Another to buy solar panels. There was even one for buying a golf cart. Those are called “tax credits” or “investments” but it’s all really the same thing.

Our politicians whet our appetites for these so-called tax deductions and tax credits. Why? Because those are economic terms we understand. We can see real numbers.

When we file taxes we like looking at the numbers, don’t we? There is a “feel-good” factor looking at taxes we didn’t have to pay. But in the big picture, what is really taking place, especially when the credits expire? The government manipulated business—for awhile. The companies were churning—for a time. 

But when it’s all over, what’s really left?

Will we continue to buy solar? Will we continue to buy some new-fangled heating and air-conditioning unit? Will we buy electric cars? Why should the government stimulate {manipulate} the economy? The real question is why should the government be in the business of picking winners and losers in the free market?

Wouldn’t we be better off with a tax rate that is stable, unchanging, simplified and lower for all instead of a select few? Don’t get me wrong. I like claiming my mortgage interest. And I like owning a home and doing improvements that stamp it with my identity. Home-ownership becomes very personal, even emotional. Our politicians know this. When we hear talk about eliminating the deduction for mortgage interest we even think it’s immoral.

It looks to me deductions get the favor of those who want to pay less tax. To pay less tax, pressure must come to the politicians from someone. And who in Washington is there precisely to obtain favors?

Washington is awash with them—they are called lobbyists.

Lobbyist Army (Photo credit: Noah S. Kunin)

And who has the least amount of lobbyists in Washington? You guessed it—everyday people, meaning the middle-class but even more-so, the lower-income working class.

And what do lobbyists promise our politicians? Well, what do most politicians desire in the long run? It’s called re-election. With all the perks they voted in for themselves, why wouldn’t they?

So it’s becomes a cycle—the lobbyists receive pay by those desiring tax breaks {manipulation}. Lobbyists dangle the gem of re-election to politicians. Politicians grant favors through legislation and lobbyists work behind the scenes to make sure the district knows the elected official is working on their behalf.

The politician receives innumerable praises in the district and is most likely re-elected.

 And so begins the incumbency.

Again … who is the loser?

Thoughtfully,
Steve