Posted on 08/18/2004 2:07:21 PM PDT by Coleus
WHEN my wife and I bought a house re cently, we narrowed our choices to two. Like many families, our decision came down to the quality of the local schools. One of the homes was in a neighborhood with schools at the top of the state's assessments, while the other had mediocre schools. Not surprisingly, the first house had a higher price and real-estate taxes.
Come federal income tax time, we'll receive a heftier refund from our mortgage interest and real-estate taxes deduction. In other words, taxpayers across the nation will be subsidizing our choice of a better school for our children — to the tune of $138 billion in aggregate tax benefits.
One prominent school choice advocacy group, the Black Alliance for Educational Options (BAEO), has adopted as mantra that school choice is widespread, unless you're poor.
Among those Americans who itemize their taxes — less than one-third of those who file tax returns — the average taxpayer receives a $9,607 deduction for mortgage interest. Add an average deduction of $2,645 for real-estate taxes for a total of $12,252 — more than $4,000 in reduced taxes for higher-income earners (even after accounting for the alternative minimum tax).
The windfall grows much higher in certain states and for the truly rich. In New Jersey, the average taxpayer moving to a wealthy school district receives a total deduction of nearly $15,000. In California, the average combined mortgage and real-estate tax deduction is $16,728.
In all, the mortgage interest and property tax deductions total $356.5 billion — roughly $138 billion is returned to affluent taxpayers.
(Excerpt) Read more at nypost.com ...
The most significant effect of real school choice may well be an equalization between property values between poor cities and rich suburbs.
If people with kids can buy an inexpensive house and still send their kids to a good school, many will do so.
Demand for housing in areas with poor schools will increase, and prices will go up, and tax revenues will go up.
And the DemocRats are determined to keep it that way.
There are two problems with the logic and conclusions implied by this article excerpt (I didn't bother to read the rest of the article):
1. The author seems to conclude that all taxpayers who itemize their tax deductions and take advantage of mortgage interest and property tax deductibility are "affluent". This is FAR from true.
2. The author seems to conclude that the entire tax benefit of home ownership is used to subsidize the school choice of these "affluent" folks who itemize their taxes. Even if the author's premise about the affluence of homeowners were conceded, only the MARGINAL effect of the "affluent homeowner's school choice" should be considered. In other words, only the DIFFERENCE between the property taxes and mortgage costs for the housing choices could be considered a tax subsidy of the school choice of the wealthy. To suggest that the entire tax reduction for a $2500 property tax bill and $9500 mortgage interest expense is a subsidy of this taxpayer's choice (as opposed to a $1700 property tax bill and a $8700 mortage interest expense for a "lesser" property in a less desirable school district), is a completely erroneous assumption.
Untrue!
Not taking my money is not the same as "subsidizing" me.
The article does ask a reasonable question. Should the size of your home mortgage and local taxes affect the federal taxes you pay? Why reward debt, or punish (relative to debt payers) people for being out of debt?
>>>The article does ask a reasonable question. Should the size of your home mortgage and local taxes affect the federal taxes you pay?
Won't matter once we get Mr. Haster's national sales tax. Of course the value of the house will drop when owners are no longer able to include these deductions when considering price.
owners should be purchasers
In fact, there is a negative correlation between housing prices and property taxes.
Some 30 years ago as a graduate student in economics, I studied the Los Angeles County Housing Market using census tract data from 1950, 1960 and 1970, as well as some interesting time series data for a couple of streets that were on the borderline between Beverly Hills and an unincorporated area of LA county, with essentially identical housing stock on both sides of the streets.
The bottom line, after a whole lot of econometric analysis, was that about 80-85% of the variation in housing prices between census tracts (controlling for similar housing stock using family income as a proxy) could be explained statistically significantly by the differences in property taxes.
More recently, I have casually observed in the real estate market surrounding metropolitan New York that if you know the difference in the property taxes on similar houses in two different towns, most of the price difference will be explainable by the net present value of the difference in taxes -- that is the tax differences were fully capitalized into the housing prices.
Why do flat tax advocates reject the idea of taxing interest income?
Because then the flat tax is no different that the current system of itemizing deductions - the lender and his competition doesn't pay tax on the revenue, so the mortgage becomes a tax-free bond yielding (costing the borrower) low interest. The lower interest is exactly equivalent to being able to take a tax deduction, so realtors are barking up the wrong tree when they oppose a flat tax.Itemization of interest deduction combined with taxation on the interest income to the lender is a shell game.
The standard deduction for 2003 was $9,500 for a joint return; when subtracted from $12,252 that leaves $2,752, not $4,000.
A deduction comes off your gross income and then the taxes are calculated; the most a $4,000 deduction would save would be $1,400.
And, at 35% on $2,752 a savings of 963.20 would be realized above the standard deduction.
I wonder if any of these writers ever read their own returns or the instructions for the 1040?
That does beg the question, however, why a particular place becomes desireable: why do some towns have better schools than others, and lower or higher taxes.
I think all schooling should be pay as you go.
It would reduce property taxes.
I believe the author is lumping the two items together because they both involve tax deductions, but mortgage interest is related, of course, to the amount of money a person borrows when buying a home, whereas real estate tax is a function of the needs of the given locality, and is directly related to the school budget.
His error on the mortgage interest is twofold. First off, it ignores the fact that wealthier people can put more money down to purchase a house. Indeed, the really wealthy can pay cash for their homes. The decision to take out a mortgage becomes a purely economic one. If a wealthy buyer believes that he can achieve greater returns by borrowing money from the bank and investing his own money in the stock or bond market or in a business, he will do so. If not, he will use his own money, to the extent possible, to purchase his home.
The second fallacy is that not all mortgage deductions accrue to areas where schools are an issue. For instance, the fastest-growing city in the country is Henderson, Nevada, just outside of Las Vegas, where tens of thousands of retirees are moving, and, in most cases, obtaining mortgages and mortgage deductions. There are few school-age children there, and, therefore, few schools. This is true of many growing communities, fueled by baby-boomer retirees nationwide.
The issue that he raises about real-estate taxes is much more on point, but there is a fallacy there as well. It is of the same nature as the "tax-cuts-for-the-rich" fallacy espoused by the left. I will agree that the preponderance of real-estate taxes goes towards the local school sytems. But, a person receives a tax benefit in the amount of the tax he pays, multiplied by his tax bracket. Thus, a taxpayer in the 30% bracket like myself who pays $10,000 per year (like I do) in taxes gets a "windfall" of $3,000 in annual tax breaks. But, and it's a big "but," such a person is paying $7,000 per year more in taxes than someone who lives in an apartment in Harlem, for example. Moreover, most studies that I've seen indicate that the expenditure per student is highest in the urban areas, with Washington, D.C. leading the nation at around $12,000 per year per student. The fact that most of that money goes down the urban toilet is not directly related to the $3,000 per year windfall I am getting because my $10,000 tax bill really only costs me $7,000.
Despite all the hoopla and tap-dancing, the Libs have no desire for the common folks to have an education.
They do not want anyone to be able to think. It would be their demise.
Thank God for the internet.
Blessings, Bobo
Homeschooling!
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