Personal Deductions - A Tax Ideal or Just Another Deal?
Jeffrey H. Kahn
Florida State University - College of Law
Michigan State Law Review, 2002
The allowance of many personal deductions, such as the deduction for medical expenses or charitable contributions, has been criticized on the contention that such deductions are not appropriate elements of an income tax system, but rather are merely devices by which Congress has expended federal funds to further some nontax program or other goal. The tax revenues that are not collected because of these provisions have been characterized as "subsidies" or as camouflaged direct expenditures of the government. This view has attained such prominence that Congress requires the federal government to publish annually a "budget" that lists those tax provisions that the issuing department concludes are so-called "tax expenditures." The premise of these tax expenditure budgets is that the provisions listed in them do not implement the principles that justify using income measurement as the basis for allocating the federal tax burden among the populace. This view rests on a notion that there are immutable principles that underlie the adoption of an income tax system and that some agreement can be reached as to the identification of those principles. The adoption of the tax expenditure concept has had enormous effect on the inclusion and deletion of provisions in the tax law.
This article examines four personal deductions that have been characterized in the publication of "budgets" by several government agencies as tax expenditures, and therefore as not conforming to income tax principles. The four deduction are: medical expenses, theft and casualty losses, charitable contributions, and the interest deduction for mortgages on a personal residence. The thesis of this article is that all of those deductions, in fact, do conform to progressive income tax principles and therefore cannot properly by characterized as governmental expenditures. In other words, each of those deductions performs a useful task in the proper measurement of income for tax allocation purposes when the entire structure of the income tax and the principles that underlie it are taken into account.
While the determination of whether the deductions discussed in this article are expenditures is not conclusive of the issue of their survival in the tax law, it can have a significant impact on their survival or on the terms on which they might survive. Moreover, the validity and usefulness of the entire tax expenditure concept is open to question, and a demonstration that a number of items have been wrongly identified as expenditures by the government agencies that list those items weakens whatever confidence one might otherwise still have in the concept.
Number of Pages in PDF File: 55
Keywords: Taxation, deduction, tax expenditure, progressivityAccepted Paper Series
Date posted: April 6, 2005
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