The Corner

Re: Tax Deductions and Vouchers

Nick, as I pointed out yesterday, economist Ed Mills suggests (persuasively in my opinion) that federal subsidies for home buying reduce national income by 10% by parking billions of dollars into less productive outlets than would otherwise have been the case. Do educational vouchers do the same? I don’t think so.

Regardless, we subsidize education for a reason — we believe that the positive externalities associated with a well-educated populace are so great that, were government not to subsidize education, private expenditures on the same would be greatly sub-optimal. You can subsidize education by maintaining a public school system, by handing out vouchers, by establishing tax credits, or whatever. But regardless of whether we walk through policy door a, b, or c, we’re still talking about a subsidy. 

Let’s assume for the sake of argument that there are significantly positive externalities associated with education and, further, that costs of subsidizing education are less than the positive externalities at issue.   Does the same hold for home ownership? No. There are some positive externalities, but they are not great and the literature is pretty clear that the costs associated with subsidizing home ownership greatly exceed the benefits of the same. 


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