Sensible “Revenue Enhancements” for the Federal Government

With another debt ceiling debate around the corner, we at RGF have made the point time and again that Washington spends way too much money. That said, in any discussion of tax reform or sensible tax policy, there are several tax breaks and deductions that need to be reduced or eliminated in their entirety. Preferably, this would be done in a revenue-neutral way, but if real spending reductions or entitlement reforms are on the table, the following tax breaks should be the first to go:

1) Tax exempt bonds for local governments: This tax exemption reduces annual federal revenues by $37 billion and simply subsidizes over-investment in infrastructure projects by local governments (including stadiums and arenas). Regardless of revenue generation or lack thereof, local governments should pay full-freight for debt. They’d be less likely to take on such debt which would be another benefit.

2) Home ownership tax deduction: This policy distorts the housing market and encourages homeowners to take on debt for homes they cannot afford. According to the Congressional Budget Office, the effective tax rate on owner-occupied housing is negative, while the effective tax rate on rental housing is around 18 percent. Interestingly, by tying people to a specific geographical area, home ownership may increase unemployment.

3) Employer health insurance deduction: While ObamaCare will take effect soon, we likely would never have had it shoved down our throats were it not for the misguided tax policy that encourages employers — rather than individuals — to purchase their own health care/insurance. While Republicans talk a lot about “defunding” ObamaCare — something that appears to be unlikely if not impossible — the reality is that a individuals could be given the same tax benefits as their employers (through a system of large HSAs) and we’d likely see dramatic improvement in US health care and the demise of ObamaCare.

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