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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: Geoff Altman who wrote (144012)	10/21/2005 2:11:42 PM
From: John Carragher	Read Replies (1) \| Respond to of 793978

The Economy \| Reduce welfare for the wealthy By Andrew Cassel Inquirer Columnist As predicted, President Bush's tax-reform commission has poked a hornets' nest with its latest proposals. Actually several hornets' nests. As of yesterday, the list of those who have declared tax reform a threat to American Life As We (or really They) Know It includes home builders, Realtors, life insurers, retailers, and governments in high-tax states such as California and New York. And that's surely just for starters. The tax panel unwrapped its plan just this week. Imagine the flak after people actually start reading the thing. We'll undoubtedly hear many more protests such as this one lodged by Bucks County CPA Alan Harris in an e-mail: "I don't know what world the advisory panel lives in, but where I live... they would bury the middle class. We will have foreclosures galore!" Or this, from Marianne Preston in Delaware County: "I am all for paying my fair share, but I don't understand how everyone being able to deduct a percentage of their mortgage interest is not fair. You pay more, you deduct more. It is simple math." Favorite deduction Harris and Preston are specifically upset about a proposal that would trim one of America's favorite tax deductions - the one you get for paying interest on a home loan. Right now, homeowners can write off all the interest on any loan up to $1 million. The tax panel wants to change that by, first of all, turning the deduction into a credit - you'd subtract it from your taxes owed, rather than from your gross income. This would be capped at 15 percent of the interest on loans of between $200,000 or $300,000, depending on where you live. The bottom line: Owners of low- and moderate-priced homes would either get a bigger tax break or see no change. But owners of deluxe houses with jumbo mortgages would lose much of their current subsidy. How unpopular would this be? In 2003, 35.8 million taxpayers claimed mortgage interest on their 1040 forms, deducting more than $325 billion. Along with the deduction for real estate taxes, interest write-offs will save all American taxpayers nearly $81 billion this year. But it's not "all American taxpayers" who are most likely to scream about this plan: just the rich ones. Eighty-two percent of the tax savings from deducting mortgage interest goes to people on the top fifth of the income ladder, according to the Tax Policy Center, a Washington think tank. Indeed, if you chart the way the mortgage-interest deduction affects different income groups, it begins to look like welfare for the wealthy. Most Americans get little or no government help paying for their houses, outside of programs such as Section 8 for the very poor. But those with incomes above six figures receive tax benefits that can average $7,000 or $8,000 a year. Irony for the wealthy The ironic part is that upper-income people end up paying most of the taxes anyway. So to some extent, they are actually subsidizing themselves. If Congress shrinks the loopholes for mortgage interest and does away with other deductions, it also could lower tax rates or cut capital-gains taxes - as Bush's panel has indeed proposed. So individuals might end up paying the same or even less. The real impact would be on real estate itself. Without the subsidy of a federal tax break, it's a sure bet that people would be less eager to take out jumbo mortgages or bid up for luxury housing. That doesn't mean people would switch to renting or buy cheaper housing. It means the sales prices of houses would be likely to rise less, or at least less quickly. And that's why home builders and real estate agents are leading the charge to save the mortgage-interest deduction. In any market where the government props up prices, it's mainly sellers and brokers who benefit, while buyers pay extra. Shrinking the deduction would remove that prop and simply let the housing market function on its own. Anyone want to explain to me why that's a bad thing?