Disagreement now lies in how the tax relief should be delivered. In his fiscal year 1998 budget, President Clinton unveiled a targeted tax-cut program which would reward tax credits to certain groups for certain activities. Many economists and policy analysts would prefer a more general, broad-based approach to tax cuts which would not single out specific activities for preferential treatment. Specifically, targeted tax policies are economically inefficient and may encourage abuse of the tax system. Furthermore, they can easily lead to abuse in the current political system.
All taxes distort behavior and reduce economic efficiency to some extent.
The goal for policy-makers is to implement tax policies which minimize these distortions. In general, broad-based tax reductions are less disruptive to the market allocation of resources than are targeted tax policies such as tax credits. Targeted tax credits artificially lower prices of government-approved activities while increasing other prices throughout the economy. The distortion of relative prices alters taxpayers' behavior and disrupts the efficient operation of markets. In effect, the government, rather than the market, determines where resources should be allocated.