Was It Lost?: Personal Deductions under Tax Reform

In a symposium in honor of Dean Charles Galvin, Was It Lost? argues that personal or itemized deductions for amounts that have been lost is appropriate. Deductions for theft losses, for example, are appropriate even if the theft is not profit or business related. But if goods or services are received in return, the expenditure is not lost. Deductions for amounts that have not been lost are unbudgeted subsidies that do harm and can not be justified within a tax bracket system. The recent Report of the President's Advisory Panel on Federal Tax Reform gave lip service to a comprehensive tax base, but beyond the executive summary the Report would create and expand loopholes. The Report is nonetheless interesting on personal deductions. It would deny deductions for state and local taxes, but allow deductions for charitable deductions, and it would turn the home mortgage interest deduction into a limited tax credit. Was it Lost? argues some charitable deductions are inappropriate because services are received in return and that some state and local taxes are losses because the taxes are redistributive and the benefit of the taxes goes to some other taxpayers. Was it Lost? agrees with the panel report that the deduction of home mortgage interest is unwarranted. The deduction can be equivalent to a 35% capital subsidy for some well to do taxpayers, and does nothing but create entry barriers for less well-to-do prospective owners.