Krijack,

Let's imagine that instead of calling them tax "deductions" we change their name to tax "refunds". You send in the full amount, and get a refund check the next day for your qualifying refund amount. The net amount is unchanged from today.. This is functionally equivalent to what we have today, you just CHOOSE to think of it as different because it makes you feel better.

Contrary to what you write, deductions are not required for a functioning economy and a vastly simpler tax code (and wildly less $$ spent on accountants) would result if we simply lowered rates a bit, and did away with all deductions. It's not like your example is wrong, we've just set tax rates high enough that your builder needs deductions to survive.

Deductions enter the tax code because they are POLITICALLY easier to vote for than refunds, stimulus, or welfare. They are not intrinsically a different action--they simply re-distribute wealth and/or liabilities in a way that politicians agree is likely to keep them in office.