Everyone in Washington loves tax credits and deductions. Politicians tout them as a painless way to help families pay for green energy, buy homes, or lower the cost of health care. They're also politically irresistible: No one wants to be accused of "raising taxes" by trimming perks that voters now consider to be entitlements.
But for all their popularity, "tax expenditures"—what budget experts call feel-good policies like the mortgage-interest deduction or education credits—are among the most corrosive and costly features of the federal tax code. New evidence backs up this skepticism.
Economists have long known that tax expenditures make our taxes unnecessarily complicated, distort pragmatic economic decision making, and mostly benefit hand-selected political constituencies. My Mercatus Center colleague Jack Salmon and I have spent time demonstrating that most tax expenditures don't offer broad-based relief but rather narrow carveouts that erode critical tax revenue while tilting the scales toward the special interests that sell whatever we're nudged into buying.
