Long Question: Taxation (Answer ANY TWO of the 5 long questions)

Some people criticize the federal income tax for allowing too many deductions and exclusions. The consequence, they say, is that people distort their economic behavior in order to take advantage of the tax loopholes. Assess each of the following "loopholes," and show why you think it should or should not be retained:

• a) The interest on municipal bonds is not taxed.
• b) The interest component of home mortgage payments is deducted from income, so that no taxes are paid on it.
• c) Property owners are allowed to deduct "depreciation expenses" from their income, even though the value of their property may have increased, not fallen.
• d) Medical expenses above a minimum are deductible.