The Incentive Effects of the Income Tax

I had a little dog, his name was Tax.
I opened the door and in come Tax.

I believe there' little doubt that the mortgage deduction contributed to the sub-prime crisis, but few seem to remember that these days.  Similarly, it seems to me, the tax deductibilty of employer contributions to to employee health insurance, which goes back to the Eisenhower years, has contributed mightily to the rising cost of health care.   Indeed, it doesn't take a great deal of analysis to show that all aspects of the Tax Code matter for economic behavior, not just the marginal rates in the top brackets.  And the various deductions, in particular, create a type of dependency.  Dylan understood that:

You have many contacts
Among the lumberjacks
To get you facts
When someone attacks your imagination
But nobody has any respect
Anyway they already expect you
To just give a check
To tax-deductible charity organizations

What we should be doing, but apparently it is too complex for our current discourse, is a cost-benefit analysis on the various deductions.  The popularity of some of them speaks to the benefit.  That doesn't mean there is no cost.  It simply means you have to get at that cost more indirectly.  There is a hyperinflation in the cost of College Education.  That is known.  Is anyone connecting the dots between that hyperinflation and the tax-deductibility of charitable giving?   The political rhetoric now seems entirely focused on fairness and income distribution considerations - so the rich should pay more in taxes.  I'm all for that, but it seems to me that is blocking any thought of efficiency arguments.

Further, and I believe the related issue is the Congress can't or won't act unless a gun is held to their head, we are contemplating rather drastic change all at once rather than a gradual weaning off a dependency.  The looming disaster that President Obama speaks of in the quote below is a consequence of the dramatic changes to be imposed.  If the changes were phased in over the same 10 years that are being considered for the purpose of deficit reduction, the resulting belt tightening might actually be beneficial.  But we seem incapable of allowing for that possibility.

Limiting Tax Deductions May Work, but Not Easily - NYTimes.com via kwout