Terrible Tax Breaks

According to a recent IRS filing, the estimated time it takes to generate nearly all paperwork associated with taxes exceeds 7.64 billion hours. In addition to the costly time burden, individual taxpayers will directly spend an estimated $35.2 billion this year for tax software, tax preparers, postage, and other out-of-pocket costs. 

   

So, why hasn’t the tax process been simplified yet for both parties? Simply put, it’s political.  

   

When you start talking about tax reform overhaul, things like deficits start coming into play. There are also many tax breaks and deductions that may look extremely beneficial, but are, instead, huge traps.  

   

Here are some examples of tax breaks that you should be weary of: 

   

• Cars: The government gives tax credits of up to $7,500 for plug-in hybrids, all-electric, and other types of exotic cars. While encouraging energy efficiency is a national interest, there are other ways to save the environment and money, such as taking public transport, biking to work, or simply moving closer to the office.  

   

• Mortgage: The mortgage interest deduction can go all the way up to $1 million in loans. Ending the deduction entirely would help prevent future bubbles. But given persistent weakness in the housing market, this would have to be phased in slowly.  

   

• Health Policy: Tax breaks for employer-sponsored health insurance should not be unlimited, as they currently are. They encourage expensive policies with few deductions or co-pays — a move that undermines market forces, which would otherwise bring down costs.  

   

• Luxury Expenses: When you sit in box seats at Broadway shows, you should be aware that you are subsidizing the entertainment going on in the luxury boxes. Breaks for taking clients to restaurants, theaters and stadiums are unwise and have played a role in the meteoric rise of ticket prices at entertainment (music and sports) arenas.  

   

• The Big Bonus: Individuals in the investment banking or finance markets pay about 15 percent of income tax per year (about half of the top rate paid by others). They get away with this by claiming that their compensation is not income, but a capital gain — even though they make no investment to form the basis of their purported gain.  

 

Ending all of these tax breaks would free up a few billion dollars to help balance and organize tax reform. However, for now, it is up to each citizen to be wary of the different so-called “breaks” and fully recognize their overall impact.