Political Aptitude Test

May 30, 1996



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Finally, The Answer

No doubt the suspense has been killing you for the past 24 hours, but here it is: the answer to Bill Schneider's Political Aptitude Test. For those of you who submitted an answer to AllPolitics, we thank you; for those who didn't, there's always next week.

Bill asks a question every Wednesday morning on CNN's Inside Politics Extra, which airs between 10:30 and 11 a.m. The question is posted on AllPolitics, and we ask you to e-mail us your answers, along with any comments or thoughts, to editors@AllPolitics.com. When Bill answers the question on Thursday -- same time, same channel -- he may feature your answer. So join in and answer along.

Using The Tax Code To Shape Social Policy

By Bill Schneider/CNN

WASHINGTON (June 6) --It's an election year, and tax cut fever is high. This week's question: What will President Clinton's proposed tax credit for higher education do? Will it...

And the answer is...

C. Use taxes as an instrument of social policy.

Taxes are not just used to raise revenue for the government. Taxes are also used to solve problems. In this case, two problems: One, help struggling families send their kids to college. And two, upgrade the education and therefore the productivity of American workers.

The old Democratic Party philosophy went something like this: You've got a problem, we've got a program. But what do you do when you've got a huge budget deficit and no money to spend on new programs? The answer: You accomplish your objective with taxes instead of spending.

Suppose the government wants to help poor people find affordable housing. It can build public housing projects. It can subsidize rent. Or it can give builders a tax break if they build low-cost housing.

That's counter to the whole purpose of tax reform which is to make the tax system simpler and fairer by eliminating tax breaks. For instance, in Steve Forbes' flat tax plan there would be no tax breaks for anything. Just add up your income, pay a percentage to the government in taxes and you're done.

The idea is to make it impossible to use taxes as an instrument of social policy. Would that make conservatives happy? Not really. That's because they also like to use taxes as an instrument of social policy. Republicans have proposed a $500 per-child tax credit to encourage people to get married and have families.

That's why the tax code is so complicated. If the government can't give away money any more, it can still give away tax breaks. And those tax breaks are driven by politics, especially in an election year.

CNN Correpondent Charles Bierbauer: So, Bill, then the president's program to cut closing costs for home sales that he's talking about today -- another perfect example?

Schneider: It's a good example. That's a program aimed at encouraging first-time home buyers. It's like the mortgage interest deduction, which benefits mainly upper-income taxpayers. Nevertheless, it encourages people to buy and own homes, which is a socially useful purpose the Democrats and Republicans agree on.

This story originally appeared on CNN's "Inside Politics Extra."
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