The Editorial Board of the Wall Street Journal is correct:
Our friends on Wall Street and in Washington keep saying that inflation is vanquished as they hope—plead—for lower interest rates. Yet the economic data aren’t bearing out their optimism, as the Labor Department’s consumer price report for August revealed on Thursday.
Consumer prices climbed 0.4% in August and 2.9% over the past year, both the most since January. Price increases last month were broad-based, hitting food consumed at home (0.6%), alcohol (0.6%), children’s shoes (1.5%), clothing (0.5%), new cars (0.3%), used cars (1.0%), housing (0.4%), hotels (2.6%), vehicle repair (5.0%), air fares (5.9%) and more.
Tax expenditures stand in sharp contrast to a neutral tax system—one that taxes income and consumption consistently and only once, trusts individuals to make buying decisions without manipulation, and leaves resource allocation to markets. Special-interest tax credits should ultimately be terminated.
A new study by Indiana University’s Bradley Heim looks at the issue from a different perspective: Do the largest individual tax incentives actually achieve their goals, and are they cost-effective?
Heim defines cost-effectiveness this way: For every dollar of tax revenue the government gives up, do we see at least a dollar’s worth of additional activity result in the targeted area? If not, the expenditure is wasteful, and it would be better to subsidize the activity directly or, better yet, to lower tax rates across the board and stop micromanaging economic life through the tax code.
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The implications are clear: Tax credits and deductions are generally not harmless ways to help taxpayers. They are costly, distortionary privileges captured by industries and interest groups. They complicate the tax code, mask the true size of government, and fail to deliver the promised bang for the buck.
Worse still, they drain revenue in a fiscal environment where the United States is already loaded down by a debt of $37 trillion and rising—making them anything but free gifts from the government. They are wasteful, and that’s the last thing the country can afford. If politicians were serious about tax reform and fiscal responsibility, they would start by eliminating any tax expenditures that fail the tests of neutrality or cost-effectiveness.
Yes: “The Trump administration is boasting of huge investments by Apple, TSMC and other big companies as ‘revitalizing’ the U.S. manufacturing industry. But factors such as tariffs may get in the way.” (HT Scott Lincicome)
David McGarry finds evidence that “markets evolve, bureaucrats don’t.”
GMU Econ alum Byron Carson draws an important lesson from the 1989 movie Kiki’s Delivery Service.
