Tax Principles

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Monday, 03 December 2012 06:05

The Washington Post told readers:

"both sides agree that as a principle, keeping tax rates low while eliminating deductions is better than increasing tax rates."

While this is true as a general principle, the preference for lower rates is considerably more complex than the statement implies. In almost any scenario of trading off lower rates for fewer deductions, the very wealthy end up ahead. Not everyone views this as desirable.

Also, the limiting of deductions is likely to pose problems for higher tax states, which could effectively count on the federal government to provide somewhat of a subsidy by lessening the impact of state and local taxes on high income taxpayers. In addition, one of the largest deductions is for charitable contributions. There is not agreement that limiting this deduction would be an appropriate trade off for lower tax rates.