Using the tax code for social engineering

Social engineering: the art of manipulating people into performing actions.(Definitionvia Wikipedia … because Wikipedia is truth.)

You will never see comprehensive tax reform coming from President Obama. I don’t think you’ll ever see tax reform from any liberal politician. And you may not see it from Republicans.  Why?  The Plug-In Electric Drive Vehicle Credits. That’s why.

The Plug –In Electric Drive Vehicle Credit allows purchasers of plug-in electric vehicles to write off up to $5,000 of their purchase. And that, my friends (as John McCain would add), is social engineering.

The only way to make the tax code “fair” is to simplify it dramatically. Do away with all the tax expenditures and deductions and loopholes. I’m not the only one making this argument.

As Dan Henninger wrote in the WSJ this morning: in the past year both “the Bowles-Simpson commission, Mr. Obama's own creation; and the Domenici-Rivlin report from the Bipartisan Policy Center” created bipartisan tax-reform proposals that dramatically simplified the tax code.

President Obama has even suggested that doing away with tax loopholes and deductions and simplifying the tax code is a worthy goal.  But, in the meantime, he’s passing more tax loopholes and deductions and credits than you can count. Check out this list:

• Refundable First-time Home Buyer Credit: This extended and increased the first-time home buyer tax credit from $7,500 to $8,000.

• Tax Credits for Energy-Efficient Improvements to Existing Homes:  Provides up to a $1,500 tax credit for qualified energy efficiency improvements.  Including:

• Solar panel installations

• Biomass stoves

• Energy efficient water heaters

• Energy efficient air conditioners

• Installation of small wind turbines

• Increasing the deduction for using mass transit from $120 a month to $230 a month

• "American Opportunity" Education Tax Credit:  Increases the Hope Scholarship Credit to $2,500.

• Exclusion of 75% of Small Business Capital Gains from Taxes

There are many, many more.  Most of these came through the stimulus bill.  And most are temporary.  There may even be some in there that you like.  And that’s the point.  These tax credits (some like to call tax “cuts”) are an exercise in social engineering.  These are tools to incentivize or manipulate your behavior.

Liberals like to use government to organize our society into a “better world”.  They want to influence how you commute to work, when you buy a home, how you heat and cool your home, and how many kids you have.  Don’t think they just use blunt tools like regulation and government spending programs to influence society.  They use tax policy too.

And by the way, I’ve used entirely too much “they” in the preceding paragraph. Republicans do it too.

Simplifying the tax code would not only make the tax code more fair, it would also reduce the influence of government in our lives.  Beyond that…simplicity and lowering the rates (almost all proposals have made the top rate roughly 23%) would encourage economic growth.

Tax reform should be a major should be a major issue in 2012.  I have no hope that liberals will push the issue.  And I have very little hope that Republicans will. But we should be asking for it.