Why do governments offer tax deductions? What is the incentive?
February 20th, 2010Believe it or not, I don’t understand tax deductions. Why?
You can write off tons of things. Why? Aren’t those costs your responsibility?
So basically you get an income tax. You deduct costs off that income right? But why does the government allow this?
Replys
Primarily to influence social behavior more than anything.
Parents get extra exemptions and credits for each child. This helps to influence family growth. This is important because as one generation retires and starts collecting Social Security their benefits are paid for by the current workforce. Workforce growth, or at least stability is essential to the financial survival of the Social Security system without massive hikes in the Social Security tax.
Homeowners get deductions for mortgage interest and property taxes. This helps influence home ownership which helps the housing industry.
Everyone gets the opportunity to save money either tax free or tax deferred towards their retirement. The effect of tax free or tax deferred growth in those funds significantly increases the growth of retirement funds. Retirees with sufficient funds available are less likely to become a burden on society.
Tax breaks for education reduce the cost of education which encourages higher education. A better educated society will tend to earn more money and be much less likely to become a burden on society in general.
By offering tax deductions the government is trying to encourage certain activities, like going to school or buying a house.
There used to be more deductions than there are now.
Because people who have the responsibility of raising kids,where getting hammered with bills and taxes.
Congress enacted deductions and credits to give them some relief.
Married or not,everyone can take the same deductions if they qualify for them.
Most people can’t itemize their deductions mostly because of the medical.
You can claim a deduction for medical expenses that exceed 7.5% of your adjusted gross wages.
High medical costs keep most people from getting medical attention,so their medical expenses are lower.
The incentive for politicians to vote for more deductions (and credits and adjustments) is to get your vote next election.
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