Sunday, February 04, 2007

Andrew Samwick would like to see tax preferences for health insurance altogether nixed as the "first reform" of health care policy. I doubt we'll get that far. Moreover, I can only briefly entertain the idea that income tax deductions for health insurance might eventually be inflated away if Bush gets his 15K cap passed. More likely, such a health insurance deduction will like the child tax credit in that politicians will periodically see campaigning to increasing it as low hanging political fruit. (It's not too cynical to argue that many tax deductions are not automatically indexed to inflation because politicians want to save up such fruit for the future.)

Longing for a simpler tax code, I sometimes ponder what will happen if the Alternative Minimum Tax is not reformed and allowed to become the most common way Americans pay federal income tax. It would be particularly pleasing to see the de facto end of the tax deductions for state and local taxes---that's just big government subsidizing more big government. However, I suspect that if the AMT becomes the norm, then politicians will lunge at the opportunities to crusade for AMT deductions for all the usual suspects. Of course, the question is how fast these deductions would accrete. Resetting them to zero might buy many years of relatively less distorting income taxation.


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