Col Rouge,

Well said. I think your statement stands alone in this thread, rather than summarising any earlier statement here, and I strongly agree with you.

The person writing as "J S Mill" is correct to say that using tax laws to engineer useful behaviour, simply leads to clever tax avoiders aping that good behaviour in letter but not in spirit.

Unfortunately, the person writing as "J S Mill" goes on in the next breath to defend his favourite tax incentive, negative gearing, a golden example of an abused tax law.

The virtue of negative gearing is to help start-up businesses get over the initial hill to first profitability, and for existing businesses to overcome temporary adversity, such as a farm in drought. It has become instead an entrenched feature in the business model of housing speculation. This has encouraged parasitic non-productive investment, and massive distortions to the housing market.

Here we see the problem: almost every opponent of tax distortions has one favourite exception, and all sorts of arguments why ending it would be catastrophic. (All tax reforms are disruptive, but disruption is not the same as catastrophe.)

For the necessary evil of welfare to those with little or no work, I refer to the Utilitarian principles of the original John Stuart Mill. There will always be poor people, and if you do not ensure they are fed and housed, they will plague you with crime. Fighting crime is more expensive, and less effective, than simply paying them to leave you alone.

I submit that the Negative Income Tax is the most effective way to do this since, unlike tiered brackets and tax free thresholds, the NIT still gives the poor an incentive to work and earn more money.

For the record Sceptic as a person with no investment property but four children and a stay-at-home wife I would have to say that my favorite tax incentive is not negative gearing but various forms of family tax subsidies (and income splitting would be great).
I have no strong view on the merits of negative gearing and nor did my post support it - it simply pointed out that a change to this (like any other) entrenched tax provision would have flow-on consequences. People wouldn't simply sit still and suck up the additional cost.
I do, however, think that if the tax office wishes to treat non-owner occupied residential dwellings as income producing businesses then they are stuck with allowing these businesses to deduct the value of their costs to produce that income - just like every other class of income producing business.