Well, after years of raising our taxes through deficit spending, the Bush administration has released a plan to raise our taxes in a variety of other ways. The attack on the mortgage interest deduction is probably the most alarming among them.
I thought the CEO of the National Association of Homebuilders pretty well summed it up: “It’s the biggest tax hike for home owners ever considered. Replacing the mortgage interest deduction would punish millions of home owners, particularly those living in California and other high-cost markets.”
This is all in the name of “simplification” and “closing loopholes,” thus accentuating the fact that “loophole” is another word for freedom.
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Loopholes are the only way I keep what I earned – we need more of them. Of course, they will ‘forget’ to cut taxes after removing the tax deductions. They will also ‘remember’ to spend the increased tax revenue. At least the government is so inefficient it is unable to fulfill its own policy.
Compare the national pattern of real estate pricing and leverage to the famous Red/Blue county map of how folks voted in the 2004 election.
Discuss.
They planned to get rid of the AMT and had to raise taxes in some manner to make up for it.
Don’t forget the other tax hike: property taxes. Because of inflation in mortgage financing and resulting boost to home prices, real estate taxes will jump for most people. Of course, their incomes have not increased in kind. It should make for an unmerry Christmas.
Removing the home mortgage deduction is politically impossible, as that is the only thing providing the “liquidity” for consumer demand that is driving the current US economy.
More such exercises in stupidity and maybe the people will finally push for a flat tax and balance budget.
The only answer is to get rid of the income tax altogether. Repeal the 16th and make it go away.
The true, genuine free-market position is thorough respect for property rights. The mortgage interest deduction is a form of transfer of wealth confiscation by government. Why should other people (many of who do not own their own home) be forced by government coercion to pay the interest on my loan. That is theft, pure and simple! The AMT is also an onerous tyrany. I agree with Matt Nellans: It is the 16th amendment that gave the federal government the right to tax that has paved the way to our relentless trend toward Big Brother government.
Ryan, I have to assume you understand the difference between a tax deduction and a tax credit, so you must know that this may not be a tax increase at all. When I first read your post, I could not help thinking it was just another stupid anti-Bush bash like the ones I read all over. I could be wrong, of course, and you might just be complaining that because of the floor has been lowered from 1 mil to as much a 400k that this will mean an overall tax increase on homeowners with huge mortgages. However, I will pay the most attention to the total tax burden that comes out of these suggested reforms (which don’t even come from Bush, by the way), before I go off bashing people. We will also have to consider the incentives created, etc.
That being said, I sure hope the total package will result in an overall lower burden on most tax payers (which is only around 55% of the adult population from what I understand). While I would like to eliminate federal taxes entirely, of course, the most realistic goal is to at least lower the overall burden and try to remove the artificial incentives created.
Mark,
I appreciate your frustration, but the mortgage interest is a deduction, a loophole, call it what you will, but it does not force up the taxes of non-homeowners, per se. Homeowners do not receive explicit transfers of wealth (I sure as heck don’t), they just get to keep some more of their own money. I agree, though, that one major reason for the tax code being like it is is to divide the electorate into factions for easy conquering.
First of all, let’s not play dumb and pretend that the recommendation of the President’s Tax Reform Panel (appointed by the President) is independent from and oblivious to the President’s political agenda. Any of us who have worked in government relations know that presidents and governors don’t appoint blue ribbon panels just to have them go off and do principled and objective research. They appoint panels to suggest policy changes that the executive hopes will provide a boost to the _political_ agenda.
If the panel floats an idea and it receives bad feedback, then the executive can claim he never supported such a horrible idea. Thus, it’s a sneaky means of political insurance that many fall for. Yet, we know that presidential panels don’t float certain ideas at all if a president is against said ideas in principle.
It’s easy to see that a lowering of the cap on mortgage interest deducations is very much in the spirit of “soak the rich” political ploys that politicians are very fond of, and something I find abhorrent. An additional problem is that a home that is 400,000 or even 500,000 dollars is hardly something that is only reserved for rich people in many parts of the country.
Certainly in California, middle class families buy homes in that range (or higher) fairly often, as do families in the mountain regions of Colorado who work ordinary middle class jobs. Plus, the property taxes in such places can be astronomical, and would no longer be deductible under the new plan.
Could some homeowners benefit under the proposed changes to replace the deducation with a tax credit? It’s possible – we’d have to do a little math. Even taking an inexpensive home by Calfornia standards, the benefits aren’t very clear.
Take an example used in USAToday: “One of the larger changes, the elimination of the home mortgage interest deduction, would increase taxes for many homeowners.
If you have a $350,000 mortgage, that generates about $12,000 to $15,000 in interest deductions a year, she said. Someone in the 25 percent tax bracket would save $3,000 on their taxes now.
Under the new plan, which allows 15 percent of interest paid on a mortgage of up to $412,000 (it was $1.1 million) to be used as a tax credit, the same taxpayer would save $2,250.”
The likely reality is that the proposed change is a tax increase for a lot of people. I’m not one of those people who think that policies allowing people to keep more of their money counts as a “special favor” as some claim.
Any policy that increases government revenues and decreases a person’s control over his own hard earned cash is a tax increase.
Speaking of dumb, I think it’s interesting how well the administration has rooked Americans accepting the income tax so that rather than asking for its abolition, they circle the wagons to protect their favorite deduction. If I were a politician, I’d be smiling right now.
Good point, Georgist, although I’m not sure it’s bad to try and keep a few bucks out of the gov’s hands where one has a good chance of doing so. This doesn’t mean we have to accept the tax system as moral. We need money to live, so we try to protect those loopholes that let us keep some of the fruits of our labor. I don’t see how this is different from opposing any increase in taxes, especially since all taxes have different effects on different taxpayers. It certainly doesn’t imply we think the income tax is a good thing.
Had Ryan not been a patholgical hater of the Republicans then he would have acknowledged that also part of this package are tax rate reductions of the same magnitude as the mortgage interest deduction. Saying this will raise taxes indicates either ignorance or dishonesty.
And switching mortgage interest deductions for lower tax rates mean in fact a increased degree of freedom. Now we must have a mortgage to get some of our money back, but with lower tax rates we can choose not and still keep the same amount of money.
In all but technicalities, the mortgage deduction is equivalent to having a subsidy to mortgage loans. If you had a formal subsidy house owners would too get money they once payed in taxes.
I suppose the board of the National Association of Realtors must be “pathological haters” also since it has released a scathing response to the proposed change. But wait, they give tons of money to the GOP, so maybe, just maybe, it is because it will raise taxes on their clients and their industry.
But wait, you say, they benefit “unfairly” (a nice leftist sentiment) from their home mortgage “subsidy.” Their subsidy skews the market in their favor at the expense of renters. Well, then the government must raise taxes on homeowners to make things “fair?” Wrong! The liberty-loving thing to do is to grant tax benefits to renters also if they are at a disadvantage. Anything that lessens a person’s tax burden is a good thing, and anything that increases it is a bad thing. Thus, I am for deductions and credits for renting, owning a home, remodeling a kitchen, buying a dog, being red headed, being a lesbian, collecting stamps, and anything else that punches the income tax full of holes until the glorious day that they repeal it.
So no, letting people keep more of their money is not a subsidy. I’ve heard Michael’s argument many times before – from leftists who argue that deductions are a subsidy. Invariably, they argue that since middle class people get this “subsidy” why not give poor people a cash subsidy? Arguing this means that one buys into the government’s argument that tax cuts are a form of “government spending.” An insidious argument, indeed.
Eliminated the AMT is a good thing (Michael accuses me of hiding this fact even though I link to an article that prominently mentions it), but why does Michael assume that one tax reduction must be replaced by a tax increase? These tax reform efforts that come along every dozen years or so are always more of the same – let’s rearrange the tax code to pay back some of political supporters and just basically rearrange deck chairs on the titanic and claim we’ve lowered taxes. Color me skeptical.
I have a question for Ryan (or anyone else), since you consider deficit spending increases a tax increase (a point I wholeheartedly agree with), wouldn’t raising taxes to offset the newly created additional deficit really be no tax increases at all? Wouldn’t it just, in fact, be more economically transparent to have people send in a higher tax bill, rather than collecting “deficit spending tax” (oh, there must be some term for that I’m forgetting) which is going to extract its levy through inflation, decreased growth, etc. etc.?
In conclusion,
Viva la Flat Tax and Balanced Budgets!
Peter:
You are not being facetious are you? There’s only one way it is better to have a balanced budget than a deficit, and that is if it is accomplished via a cut in government spending. If you raise taxes to balance the budget, then guess what, spending will increase further to compensate. Spending cuts are the only thing to promote to reduce our burdens. I’ll not accept tax increases until i am allowed the opportunity to opt out of the tax system. Then i’d opt out and say tax away, it’s none of my never mind
I’m not really being facetious, but I am probably guilty of being roundabout. I guess what I was amorphosly pondering at a far too early an hour, was if the debate were shifted rhetorically back to a simple choice between raising taxes or cutting spending, with none of this “deficits don’t matter” drivel being bandied about, that the small-government movement could be a much greater force.
This post is surprisingly dishonest and petty compared to the others on mises.org. As a non-homeowner, I’m incensed that my taxes are higher to support home ownership for others. The fact that home ownership has been selectively subsidized by the government has got this country into a lot of trouble. We’d be better off not distorting the housing market, and therefore the general organization of society like this; though I realize that it is probably impossible to take any goodies away from the political juggernaut of the home-owning middle class.
Is mises.org not big enough to forgo subsidies that its writers benefit from themselves?
The entire issue is obviated by the fact that the income tax itself is the problem and should be abolished. Once you have an income tax, you have political squabbles over which segments of society should get subsidies for “preferred” behavior. Disgusting.
Aaron’s argument just goes so show how successful the establishment has been at convincing people that it’s all the government’s money to start with. OK, let’s start by all agreeing that the incomet ax is bad and should be repealed. Kum by ya.
This claim of dishonesty is nonsense. Aaron is claiming that I’m calling for jacking up taxes on renters, which is certainly not the case, or that I’m calling for renters’ tax bill to remin high so that owners can unduly benefit. Both assumptions are wrong. Nor do I think as Aaron apparently does, that government is entitled to a minimum tax revenue amount since he assumes that lowering taxes on one group must mean another group has to foot the bill. As I saidabove, the proper response is not to call for policies that raise taxes on homeowners, but for policies that lower taxes for those who don’t own. A tax credit for renters perhaps, or just a lowering of rates overall so that the magnitude of benefit from buying is reduced.
Aaron it seems can’t see beyond the status quo where every tax break “must” (the government tells us) be accompanied by a tax increase for someone else. Every little thing that reduces taxes for one group of Americans should be accompanied by calls for further tax breaks for everyone else. Not a bunch of whining about how “it’s not fair.”
Yes, I understand that the deduction distorts the market by making buying more attractive than renting (ceteris paribus), but I fail to see why the only solution suggested by readers here is raising the tax bill of owners rather than lowering the tax bill of renters.
Since so many are intent on describing as a “subsidy” the situation where people are able to keep more of what is rightfully theirs, let us consider the progressive income tax. We could say that those who enjoy a lower tax bracket because of lower incomes are “subsidized” by those with higher incomes in a higher tax bracket. Indeed, even with a flat tax, those who earn higher incomes pay much more. So, are lower income people all “subsidized” by higher income people? By the “tax break as subsidy” argument, this must be so, and we must also conclude that low income people should be forced to pay more to make it fair for the rich people.
In reality, the rich people should have their rates lowered (along with everyone else’s rate) until it is gone. Those who say that we should not support any tax breaks, we should ONLY support repeal of the income tax are making the perfect the enemy of the good.
Or consider: Since the data shows that homeowners tend to have higher incomes than renters, the renters are REALLY the ones being “subsidized” not the owners. So raise taxes on the renters! —This is a dumb argument of course as is the call to raise taxes on owners to make things “fair” for the renters.
A good portion (somewhere between 1 and 2 trillion) of the bonds financing the deficit spending was sold to foreigners during the dollar’s recent fall as they attempted to prevent their own currencies from rising. That’s not “raising taxes by deficit spending” but shifting the losses to another country… only a reserve currency nation can get away with it. But it’s not all one-sided either. Our companies here make 30-40% profit while the manufacturing that is moving off-shore is making 2-3% in profit. To what degree that is sustainable (the “platform company”) is debateable.
One of the things that is interesting is that the desire to eliminate (or drastically reduce) the home mortgage deduction is “bipartisan.” (A term meaning we can sell it to two different constituancies.)
Democrats spin it as taking something from “the rich” (who aren’t really people anyway) and Republicans sell it as a “tax cut” (when, like the Reagan era tax cuts, it is a tax hike).
Net it all out, the proposal is a disaster. In places like California, where new property purchasers often have little or no equity, the resultant slide in property values (estimated at 15% or more) will put them under water. This will mean many will have to sell, putting a large amount of property on the market (which will glut it, causing property values to fall further) and you have the 1st Depression of the 21st Century.
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