Posted on 11/12/2010 9:27:33 AM PST by WebFocus
The deficit reduction committee, created by President Obama a few months back to kick the can of his irresponsible overspending down the road a few decades, is out with its trial balloon recommendations for reducing the federal deficit. According to the Wall Street Journal, its ideas include:
For businesses, it would lower the corporate tax rate but remove a number of deductions currently available. It would make permanent the research-and-development tax credit.
Federal subsidies to agribusinesses would begin to be slashed by $3 billion a year.
On Social Security, it would gradually increase the retirement age when people can start receiving benefits to 68 at around 2050 and to 69 by 2075.
It would combine a cut in benefits with an increase in taxes levied on wealthier seniors’ benefits.
The savings would be phased in over time and include a freeze on salaries and bonuses paid to federal employees for three years, at a savings of $15.1 billion by 2015.
It would propose cutting the federal work force by 10% for a further savings of $13.2 billion by 2015.
It would seek to rein in federal spending on health care, both by introducing further proposed changes, including reform of tort law, and by seeking to slow the growth of the Medicare program.
All of that, especially cutting the corporate tax rate and tort reform, makes sense. Tort reform alone could do quite a bit to reduce medical costs, which should in turn reduce health insurance premium costs, which would help families and individuals up and down the economic ladder without forcing anyone to buy anything or increasing government control over anything, as ObamaCare does. I’m fine with raising the retirement age and cutting Social Security benefits. Overall we need to reduce liabilities and entitlements, and the above ideas start us on the path to doing that. The fact is, we’re living longer, and Social Security in particular needs to be adjusted to that reality.
There are at least two ideas in the commission’s recommendations that strike me as terrible. Here’s one, from the WSJ story:
The federal gasoline-tax rate would start to increase from 2013, increasing by 15 cents a gallon at that stage.
And here’s the other, from the New York Times’ take:
The proposed simplification of the tax code would repeal or modify a number of popular tax breaks — including the deductibility of mortgage interest payments — so that income tax rates could be reduced across the board.
Cut income taxes, fine, good idea. That will make family budgets a little more liquid, which should spur economic activity, which tends to increase federal revenue.
But repealing mortgage interest payment deductions amounts to a direct attack on the American dream of home ownership. The fact that we have property taxes at all already undermines the concept of ownership; killing off the biggest housing tax break greatly reduces the incentive to buy in the first place.
I’m not an accountant, but like nearly every other adult in the country I’ve done the calculations on home ownership. Owning a home tends to cost more than renting in the short term in upkeep and so forth, but it’s beneficial in the long term. Over a year’s time, you get a tax break that you don’t get if you rent. And over a longer term, your home is an investment that tends to appreciate in value, helping one build future security.
Ending the mortgage interest deduction amounts to a hefty tax hike in the short term, and that makes your home harder to sell since the purchase calculation become less favorable to potential buyers, which makes it a less viable investment over the long term. Given the housing crisis the nation has suffered over the past few years, the last thing we should do is introduce a tax hike that makes owning a home less attractive. But ending the mortgage interest deduction does just that. It will end up driving some who are on the margins now from the homes that they’re barely hanging onto.
As for raising gas taxes …where to start? To begin with, both raising the gas tax and ending the mortgage interest break hurt those who can afford it the least, the most. Also, raising the gas tax will make everything more expensive to manufacture and move around the country to points of sale. We already have the idiotic insistence on ethanol making food prices rise, we don’t need a gas tax hike to add to that. If the commission was looking for a way to freeze up an already weak economy, they couldn’t have found a better one than jacking up the gas tax.
It’s tempting to see these two ideas as less about deficit reduction and economic efficiency than about enabling some other long-term strategic goal. In the case of the gas tax, it may really be an attempt to make the price of gas skyrocket to push toward “green” jobs etc. It’s not like there’s no precedent for that.
How about instead of hiking gas taxes, we sell off federal energy exploration leases? How about we cut all federal funding to groups like Planned Parenthood, public broadcasting, the National Endowment for the Arts, and all other similarly questionable entities? How about we de-certify public employee unions, as Mitch Daniels has done in Indiana, to reduce the pressure to keep paying federal workers more and more while the private sector lags? How about we just cut federal spending across the board? How about a little common sense?
The best thing we can do to stabilize and repair the country’s fiscal health is to get rid of the current administration, but that’s still a couple years off.
-- Bryan Preston has been a leading conservative blogger and opinionator since founding his first blog in 2001. Bryan is a military veteran, worked for NASA, hails from Hot Air, was producer of the Laura Ingraham Show and, most recently before joining PJM, was Communications Director of the Republican Party of Texas.
But what this will ultimately require will be the wholesale elimination of entire Federal Departments and agencies.
If the spending and subsidy cuts are implemented, then I can deal with an increase in the gasoline tax. As for Social Security cuts, I would take benefits back to where they were before Jimmy Carter took office, and tie them to inflation since then. And for eliminating the mortgage interest deduction, yes it would hurt me personally. But it is the right thing to do. And it would make houses more affordable for first time buyers since the price would not be artificially inflated due to the deduction.
The best part of all is the simplification of the tax code. Three tax brackets - 8%, 14% and 22%. That's as close to a flat tax as we're ever going to get. A top bracket of 22%? Sign me up!
RE: A top bracket of 22%? Sign me up!
ANY BRACKET IS *USELESS* WITHOUT A CLAUSE THAT STATES — IT WILL TAKE 2/3 OF CONGRESS TO INCREASE THE PERCENTAGE. Otherwise, any Congress can raise that to 25%, then 28% then 30%, then who knows where...
Also, regarding Social Security... WHY NO MENTION OF PREVENTING CONGRESS FROM *RAIDING* THE SOCIAL SECURITY TRUST FUND TO PAY FOR TODAY’s SPENDING?
This is such a common sense ought-to-be-done issue that I believe proposing and enacting it will be met with approval from Americans by a HUGE MAJORITY.
I wish that would happen.We could stand to lose a few hundred agencies. More likely I expect a New, “New Deal” . It will be called the “Big F’n Deal” in honor of crazy Uncle Joe .
RE: Raiding Social Sec
What ever happened to Al Gore’s LOCK BOX?
People made fun of it in Saturday Night Live but that was really a great idea (and I’m serious about it).
However, even if Al Gore became POTUS, that Lock Box would NOT have been implemented. It’s high time we implemented it NOW if we want to save whatever’s left of SS.
RE: It will be called the “Big F’n Deal” in honor of crazy Uncle Joe .
Ahhh yes, good ol’ Uncle Joe. That was FDR’s term of endearment for Joseph Stalin (who killed more people than Hitler himself).
Another waste of time and money and staffed by incompetents.
If home ownership is the American dream, why would incentives be necessary. Enough with all the gerrymandering of the tax code. Eliminate the IRS and institute the fair tax. Don't like property taxes? then set up the fair tax system on the state and local level also.
Everybody wants to simplify taxes and reduce government intervention in private markets, until it comes to something they benefit from.
Let's assume we want government to encourage home ownership over rental. Home interest deduction doesn't do that. It encourages borrowing to buy a house over paying cash.
And it benefits people who buy overpriced housing over those who spend more rationally, and young people who just bought a house over older people who have lived in one for years (and have low mortgages or have paid off their mortgages).
If we want to encourage home ownership by compensating ALL homeowners, we should lower property tax rates -- although that in itself is a manipulation (I just don't want to discuss all the issues regarding property taxes, but they are a local issue not national).
Interest is a minefield because of government attempting to grab revenue. Interest you pay is NOT deductable, EXCEPT for homes and margin interest for purchasing investment assets. Meanwhile, interest EARNED is all taxable, except interest on government bonds, or if it's in non-taxable accounts. This is a great distortion by the feds.
So really we should either tax all interest and deduct all interest payments, or we should not tax interest or deduct it. Or if we are going to tax/deduct, it should be based on real income/real expense, meaning adjusted for inflation. If we have 3% inflation, and you earn 3% interest, you shouldn't have to pay tax on the interest.
Sure, in the short run removing the home interest deduction would lower the value of houses. But the interest deduction has artificially inflated home values, since people buy homes not based on price, but on total monthly payment costs.
Once the hiccup is done (and maybe you could have a tax-law change to help smooth out the bump), everything will be back to normal, and we won't have people borrowing against their house (one of the big reasons for foreclosures) simply to get an interest deduction.
And that is what happens -- I am refinancing my mortgage (to get lower rates) but also re-borrowing back to it's original principle because I can deduct the interest, whereas if I took out a normal consumer loan to pay for my kid's college I couldn't deduct the interest.
Contrast that with their plan to remove charitable deductions. In that case, I can argue for the deduction, because when you give money away, you didn't get to use it, so you shouldn't have to pay tax on it.
They should cut spending 1st and foremost,but this is interesting:
Home ownership in the US is around 67%.
In the UK and Australis around 69%
In Canada around 67%.
Motrgage interest is not decuctible in any of those countries,yet they still buy houses.
(source- “Broke” page 346)
Banks and Housing Markets: Canada vs. U.S.
http://www.freerepublic.com/focus/f-bloggers/2247638/posts
“WHY NO MENTION OF PREVENTING CONGRESS FROM *RAIDING* THE SOCIAL SECURITY TRUST FUND TO PAY FOR TODAY’s SPENDING?”
I don’t understand why people think this way. What do people </i> think </> should be done with the money that goes into the trust fund ? Let it sit in a big mattress somewhere so inflation can make it worthless ? Invest it in corporate bonds instead of Treasury bonds ? Put it in an S&P 500 Index fund ?
“I’m not an accountant, but like nearly every other adult in the country I’ve done the calculations on home ownership.”
Somehow I don’t think he really has “done the calculations” that he should have to justify this statement. Most people that earn enough money to afford to purchase a home still have an effective tax rate — after including all their deductions, not just the mortgage interest deduction — in excess of 10%. (My own effective tax rate before I retired was 17% of my gross, and that was after a big mortgage deduction, max 401k, etc.) Yet a 10% rate is all that would be required if all deductions, exemptions and credits were eliminated. A 10% rate applied to gross incomes would actually collect slightly more tax revenue than the mess we have now.
Given the REAL choice of a flat 10% rate and no deductions at all, most home owners would be left with MORE cash in their pockets than the multiple brackets we have now WITH all the deductions.
All this backlash against giving up deductions only proves that people are reacting to “losing” something they’ve been tricked into accepting so they won’t take the time to see how much better off they’d be with a truly flat tax. Not only would they be better off financially, but their life choices would be much less constrained if they didn’t have to consider “tax consequences” of every decision. They’d have more freedom as well as more money in their pockets.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.