Monday, April 18, 2005

Bless the Child

AMT — the tax we love to hate

Now that tax season is over, we'll probably stop seeing articles every day about the Alternative Minimum Tax and how it's turning into a scourge on ordinary people because it disallows too many deductions. But the government needs the revenue it generates--estimates of future deficits, already insanely high, take into account the extra money from the AMT, which helps to offset some of the largesse of the Bush administration's many tax cuts by wiping them out for folks with several children or big mortgages.

Well, here's a crazy idea: Why not get rid of those deductions for everyone? Stop letting people lop huge chunks off their taxes because they chose to procreate like mad; they already get the education of their offspring subsidized by their childless neighbors. Maybe people would think twice about having six kids, or at least think harder about how to feed all those mouths, if they knew that they wouldn't be paid $1000 a head for having children. And what does the mortgage deduction do? It allows people to buy bigger houses than they otherwise would, driving up prices and creating an endless upward spiral so that people rationally invest all their money in housing--and none of it in other, more productive endeavors that might bear real economic fruit and make our nation more competitive in the world. The price of a house might not double in five years if people knew they couldn't get a bigger and bigger discount on their new home--or second home!--by borrowing more and more money to pay for it.

If the government wants to create incentives for people to own their own homes--and I think that's a worthy cause, as home ownership has been shown to have myriad social benefits--it should focus on helping people to own their first home. Creating incentives for people to move around and buy bigger and bigger homes so they can win the real estate lottery, and encouraging child-rearing in a world that already has enough occupants, do not seem like goals that our tax code should promote.

Will I feel differently when I buy a home and want to deduct the oodles of interest I'll be paying the first few years? Perhaps. But if the playing field were level--if no one could deduct their interest--then the price I would pay for that home would be lower, and the incentive to leap from home to home--or buy a second home--and thereby artificially inflate the price of one of the few things every person needs, would go away.

My point is this: You should not be able to avoid taxation by profiteering, and the tax code should not be structured in such a way that it inflates the price of a necessary good beyond the means of ordinary people. So scourge away, AMT: A grateful nation awaits the results of your handiwork.

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