Do Tax Deductions Cost the Government?

I usually like Robert Samuelson’s columns. He’s a practical free-market advocate, and a smart writer (see his recent column on "the new mercantilism") .  But once in a while, his moderation and practicality leads him to advance some rather dubious ideas, such as in today’s column.  Most of it, about America’s love for bigger and better homes, is basically fine.  I don’t share quite his level of skepticism over the bigger-house trend — why should successful earners be made to feel guilty about owning nice homes? — but he’s probably right that numerous large home purchases aren’t exactly smart investments, and there are plenty of people who ought to be a little more careful with their finances when buying a house.

But then he goes on to criticize tax deductions for mortgages by saying that this year "the tax deduction for mortgage interest payments will cost the federal government $89 billion."  Well, no. The government might not get as much revenue as it otherwise would have if those deductions weren’t available, but it won’t "cost" the government anything, because that money isn’t the government’s; it’s the taxpayer’s.  This is the same fallacy made by politicians who claim that tax breaks "cost" the government money.  It’s a convenient way of looking at things for those who want the government to have more control over taxpayer income, of course, but it’s a dubious notion that ought to be laid to rest, and shouldn’t be employed by someone as sharp as Samuelson.

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