To extinguish a Debt which exists and to avoid contracting more are ideas always favored by public feeling and option, but to pay Taxes for one purpose or the other purpose, which are the only way of avoiding the evil, is always more or less unpopular.
One deficit reduction option that wasn’t available to Hamilton was eliminating “tax expenditures,” tax revenue governments forgo when they allow taxpayers to deduct various expenses from the tax returns. But does Hamilton’s political logic apply to today’s tax expenditures, including the popular home mortgage interest deduction? A recent study by the Pew Charitable Trusts suggests that it might. The study found that tax expenditures totaled about $1.1 trillion in FY 12, “rivaling the total federal discretionary spending that funds programs supporting activities ranging from national defense to education to highways.” The mortgage deduction alone that year ran about $72 million in forgone federal taxes. Is Congress ready to close this spigot?
The answer depends on whether Hamilton’s political logic holds up in a continental nation organized along federal lines. In her review of the Pew report, Stateline’s Pamela M. Prah noted how the mortgage deduction, “widely viewed as a tax break for a broad slice of middle-class America, benefits the residents of some states far more than others.” The geographic distribution is telling: “States with the highest claim rates were concentrated along the East Coast and in parts of the West; those with the lowest claim rates were mostly in the South, particularly in the band from Texas to Mississippi and stretching up to West Virginia…”
This deduction’s geographic distribution suggests Hamilton’s math gets a little more complicated, especially when Congress is part of the equation. Who said, “All politics is local”?
