Monday, September 04, 2006

Mallaby on Inequality and Taxes

In today's Washington Post, Sebastian Mallaby gives us his laundry list of proposals to reduce inequality. I disagree with a lot of it (such as Mallaby's generally positive assessment of higher minimum wages, greater unionization, and repealing saving incentives), but I would go along with some of the ideas. Here is the part I like best:

Many popular provisions in the tax code are both ineffective and regressive. Repealing them would liberate billions that could be used to help workers.

Take mortgage-interest relief, a policy that's supposed to boost home ownership. More than half of this subsidy flows to the top 12 percent of households with incomes over $100,000; the poor get very little. This absurdly regressive policy doesn't even promote its objective, since affluent families would own their own homes anyway. The U.S. home ownership rate is no higher than Britain's or Australia's, two countries that have no mortgage-interest tax relief....

The same argument holds for tax incentives to buy health insurance. Just over a quarter of this subsidy is swallowed by households in the $100,000-plus bracket; far from promoting the wider dissemination of health insurance, it may even reduce it. Affluent Americans use the subsidy to buy all-inclusive health plans, which in turn causes them to throw money at health services; health inflation goes up, making insurance too expensive for poor families. The Treasury estimates that the ranks of the uninsured could be reduced by at least 1 million if the tax deduction for health insurance were capped at a reasonable level.

Mallaby would use the revenue from eliminating these tax breaks to expand the EITC. I would use some of the extra revenue to help close the long-term fiscal gap.