I’m sure I’ve stated this before, but one of the most annoying tax credits out there is the one that allows employees to set aside pre-tax dollars for transportation expenses… which sounds like a great pro-environmental measure until you realize that either public transit or parking expenses qualify. What policy purpose could this possibly serve? Now I see news that the cap on parking credits is being raised for 2006, but not for transit. I guess our government wants more people to drive to work.
In similar news, Marginal Revolution considers a Slate article on Health Spending Accounts (HSAs). Worth reading on their own merits, but what really struck me was this line from Austan Goolsbee:
That would be exactly analogous to what has happened with "529" college savings programs. In 2001, Congress passed a tax break for college savings accounts. As I wrote three years ago, the plans were "supposed to be an enormous federal tax subsidy for education." But the small number of financial firms that are approved to manage the 529 accounts have basically captured that subsidy by raising their investment fees to levels well above those in the regular investment market.
If there’s any indictment of the tax-credit fetish in post-Clinton policy, this would be it. Tax credits are popular means of gaining popular acclaim, but they’re even worse than more traditional government expenditure at aligning incentives properly.
No comments have been added to this post yet.