Tax Expenditures Have Policy Purpose

Yglesias points out that tax deductions have widespread popularity (not just favored by a narrow interest group) and would probably get replaced by an actual government expenditure if they were cut out:

The main point I would make ...is ...how hard tax reform is. This is often portrayed in DC as if it's primarily a political difficulty, like the problem is simply that politicians lack the gumption to take on the interests behind these tax breaks. But part of what we see here is that many of these really high-value tax breaks are integral elements of American social policy. Take the charitable deduction, for example. All governments in the developed world do a lot to subsidize things like universities and museums and other cultural institutions. In the United States, the availability of a tax deduction for charitable contributions is one of the main ways we do this. Rescinding the deduction and replacing it with more direct subsidy along European lines is a proposal that might make some sense (although I don't think I would favor it) but simply eliminating it in order to finance a tax cut would be an epochal change in education and cultural policy and not just a tax shift.

An even stronger version of this occurs with the health care tax deduction. Subsidizing employer-provided health insurance and then regulating it is not, in my view, a very smart way of providing health care insurance to people. But it is the way we've chosen to do it for the non-elderly non-poor population. To replace this way with some other way would be a great idea, to just eliminate it and replace it with nothing would be a disaster. The EITC and the Child Tax Credit are two of the main instruments of income redistribution in the United States. There's a case to be made for scrapping all of this stuff, but with the exception of the deduction for state and local income taxes I don't think you could do any of it without creating some kind of new replacement non-tax policy.

People Irrationally Pick Deadly Commuting

Commuting is the most dangerous thing that most people do every day.  But the biggest risks are not just having a wreck.  Annie Lowrey has a great article about the effects of commuting on health and well being at Slate. 

This week, researchers at Umea University in Sweden released a startling finding: Couples in which one partner commutes for longer than 45 minutes are 40 percent likelier to divorce.  ...People with long transit times suffer from disproportionate pain, stress, obesity, and dissatisfaction. The joy of living in a big, exurban house, or that extra income left over from your cheap rent? It is almost certainly not worth it. First, the research proves the most obvious point: We dislike commuting itself, finding it unpleasant and stressful. In 2006, Nobel laureate Daniel Kahneman and Princeton economist Alan Krueger surveyed 900 Texan women, asking them how much they enjoyed a number of common activities. Having sex came in first. Socializing after work came second. Commuting came in dead last.... A survey conducted last year for the Gallup-Healthways Well-Being Index, for instance,found that 40 percent of employees who spend more than 90 minutes getting home from work "experienced worry for much of the previous day." That number falls to 28 percent for those with "negligible" commutes of 10 minutes or less. Workers with very long commutes feel less rested and experience less "enjoyment," as well. ...Robert Putnam, the famed Harvard political scientist and author of Bowling Alone, names long commuting times as one of the most robust predictors of social isolation. He posits that every 10 minutes spent commuting results in 10 percent fewer "social connections." Those social connections tend to make us feel happy and fulfilled....The Gallup survey, for instance, found that one in three workers with a 90-minute daily commute has recurrent neck or back problems.... According to research from Thomas James Christian of Brown University, each minute you commute is associated with "a 0.0257 minute exercise time reduction, a 0.0387 minute food preparation time reduction, and a 0.2205 minute sleep time reduction."  ...According to research from Thomas James Christian of Brown University, each minute you commute is associated with "a 0.0257 minute exercise time reduction, a 0.0387 minute food preparation time reduction, and a 0.2205 minute sleep time reduction."  ...Researchers at the University of California–Los Angeles, and Cal State–Long Beach, for instance, looked at the relationship between obesity and a number of lifestyle factors, such as physical activity. Vehicle-miles traveled had a stronger correlation with obesity than any other factor. ...[The] average one-way commuting time has steadily crept up over the course of the past five decades, and now sits at 24 minutes (although we routinely under-report the time it really takes us to get to work).... How much would we need to be compensated to make up for the hellish experience of a long commute? ...Bruno Frey and Alois Stutzer, actually went about quantifying it, in a now famous 2004 paper entitled "Stress That Doesn't Pay: The Commuting Paradox." They found that for an extra hour of commuting time, you would need to be compensated with a massive 40 percent increase in salary to make it worthwhile.... Given the choice between that cramped apartment and the big house, we focus on the tangible gains offered by the latter. We can see that extra bedroom. We want that extra bathtub. But we do not often use them. And we forget that additional time in the car is a constant, persistent, daily burden—if a relatively invisible one.

Estimating Tax Elasticity and Peak of Laffer Curve

Rich people had an inelastic labor supply in the 1920s and 1930s. James Kwak:

Christina and David Romer’s new paper, “The Incentive Effects of Marginal Tax Rates: Evidence from the Interwar Era,” is available as an NBER working paper
...They find an elasticity of taxable income with respect to changes in the after-tax income share of 0.19.  ...To put this in perspective, an elasticity of 0.19 implies that tax revenues would be maximized with a tax rate of 84 percent; that is, you could raise taxes up to 84 percent before people’s reduced incentives to make money would compensate for the higher tax rates.
Second, remember that this is a study of the super-rich: not the top 1%, but the top 0.05%. These are the people whom one would expect to have the highest income elasticity, precisely because they don’t need the marginal dollar. Elasticities tend to be lower for ordinary people because they need to cover their expenses.
Finally, the left-hand-side variable for the main regression is reported taxable income. Taxable income can change both because people are earning less income and because they are engaging in tax strategies to reduce their taxable income. As Emmanuel Saez, Joel Slemrod, and Seth H. Giertz conclude in “The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review” (pp. 49–50):

while there is compelling U.S. evidence of strong behavioral responses to taxation at the upper end of the distribution around the main tax reform episodes since 1980, in all cases those responses fall in the first two tiers of the Slemrod (1990, 1995) hierarchy—timing and avoidance. In contrast, there is no compelling evidence to date of real economic responses to tax rates (the bottom tier in Slemrod’s hierarchy) at the top of the income distribution.

In other words, ...U.S. history shows that when you raise taxes on the rich, they don’t stop trying to make money: they just pay their lawyers and accountants more to avoid paying taxes. The solution to that is a simpler tax code with fewer exclusions and deductions.