Cato Daily Podcast
Taxpayers Like Their Special Handouts, Dislike Yours
Apr 14, 2025
Adam Michel, the Director of tax policy studies at the Cato Institute, breaks down the hypocrisy surrounding tax expenditures. He reveals how taxpayers cheer for their own benefits while deriding those that serve others. The discussion dives into egregious tax breaks that clutter the system, like deductions for pass-through businesses. Michel also highlights taxpayer favorites, such as the mortgage interest deduction, and examines how these preferences shape political landscapes. He advocates for a grand bargain in tax reform that could streamline the tax code by eliminating some benefits to reduce rates for everyone.
09:53
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Quick takeaways
- Taxpayers generally support their own financial benefits while opposing similar handouts for others, highlighting a bias in tax preferences.
- The ongoing challenge in tax reform lies in balancing popular tax benefits with the need to eliminate distortive expenditures for a healthier economy.
Deep dives
Understanding Tax Expenditures
Tax expenditures, also referred to as loopholes or giveaways, represent deviations from the ideal tax base, primarily assessed against an income tax framework. These expenditures encompass tax credits and deductions that are selectively granted to special interest groups, which complicates the tax code and creates economic distortions. A well-structured tax code should favor a broad base with minimal exemptions, allowing for lower tax rates overall. Raising tax rates can lead to exponential economic damage, making the reduction of tax expenditures essential for effective tax reform.
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