Sep 5, 2019

The case against tax deductions

Felix Salmon
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Note: Data includes the first 30 weeks of each year; Data: Internal Revenue Service; Chart: Chris Canipe/Axios

Trump's tax cuts were, weirdly, feared by homeowners and charities. Normally, tax cuts make people richer, and richer people spend more money on housing and charity.

But, but, but: Both those items have historically benefited from massive tax expenditures, leading to worries that they would be worse off after the tax cuts.

Driving the news: According to the latest data from the IRS, the tax cut worked much as everybody expected it would. The number of people itemizing their taxes plunged by more than 65%, with similar falls for the number of people deducting mortgage interest and charitable contributions.

Yes, but: The other shoe hasn't dropped.

  • Only 8% of taxpayers now deduct mortgage interest, yet home prices continue to rise, with no indication that the new law changed anything at all.
  • Similarly, the charitable contribution deduction has had no visible effect on charitable contributions. Total giving rose by 0.7% to a new record high in 2018, despite a late-year stock market plunge.

The bottom line: Tax deductions are much easier to create than they are to abolish; they're also hugely expensive. The evidence strongly implies that almost all of them are a waste of money.

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