The home mortgage interest deduction is the largest explicit tax deduction for households in the federal income tax code. Politicians have been reluctant to even consider removing this deduction, believing it to be one that provides significant benefits to middle-class taxpayers and encourages homeownership. These benefits are greatly over- stated: most taxpayers do not benefit from this deduction at all or receive a very small benefit. The only taxpayers who do receive a large benefit are those in the upper income brackets. Taxpayers and the entire economy would be better served by removing the mortgage interest deduction and lowering marginal tax rates to offset the change.
A new Mercatus Center study discusses potential near- and longer-term impacts of high levels of government debt on U.S. economic growth and competitiveness. The study also reviews the experiences of other nations with debt-to-GDP ratios similar to that of the United States.
This study documents the economic distortions and inefficiencies that result from a tax system filled with tax expenditures. We review each of the ten largest tax expenditures for individuals and corporations, focusing the following distortions of economic activity: spending on goods and services, capital allocation, the distribution of income, and lobbying and rent-seeking.
To minimize the effect of the increased taxes on their election prospects, politicians employ gimmicks to hide the taxes. In this paper, we discuss four types of gimmicks. Legislative gimmicks use the wording of the tax law to hide who is being taxed or how much they are being taxed.
The question of who pays a tax has a discernible answer that need not be shrouded in technical mystery. This paper offers those who have little or no formal exposure to economics a tutorial in the economics of tax incidence.
Fiscal policy at both the federal and state levels is on an unsustainable path. Entitlement reform in America—particularly Medicaid reform—is shifting from a question of whether cuts should be made, to how much must be cut? To better understand best practices in Medicaid reform, we explore five recent state-level Medicaid reforms and their ability to simultaneously reduce costs, maintain or increase access, and survive the politics of reform.
This paper looks at the recent growth in Medicaid spending and attempts to explain Medicaid reform successes and failures by focusing on five reform experiences in Rhode Island, Washington, Florida, Idaho, and Tennessee.
This paper examines the fiscal health of the states, focusing on two worrisome characteristics: an understatement of unfunded pension liabilities and ever-increasing expenditures, driven primarily by health care costs.