The Current FReepathon Pays For The Current Quarters Expenses?
Posted on 11/19/2011 3:30:19 AM PST by Kaslin
There are three "keystone deductions" in the IRS code that matter more than all others to Americans who itemize deductions.
They are keystone deductions because they help the middle and upper middle class and they promote extraordinarily important social policies which have long been at the center of the traditional values held by most Americans.
The first is the deduction for contributions to qualified charities, such as hospitals, high schools and colleges, charities serving everyone from children to the homless to the old and infirm, and of course churches of every denomination.
The second keystone deduction allows homeowners with mortgages to deduct the interest on that mortgage from their income before calculating the ta they owe. This deduction encourages people to buy houses and is in fact a key component of the value of every house in America. The deduction is a valuable part of every home. If it is ended or limited, the value of every house in America falls, even if that home has no mortgage on it. The same downward pressure on home values occurs even if the deduction is only limited for some houses or some owners --say second houses or homes costing more than $500,000. The housing market doesn't distinguish between who owns what, but cares mostly about what buyers are willing to pay, and a lower or eliminated deduction means fewer buyers which means falling house values.
The third deduction allows taxpayers to deduct from their income before calculating their federal tax all the state and local taxes they paid in the previous year. Americans in high tax states, already staggering along under punitive tax regimes, would be smashed by any limit on this deduction. Some would call such a move a last straw, and leave the already reeling states like California, but most would simply be trapped where their jobs and (suddenly less valuable) homes are, paying higher and higher taxes.
Thus a Pennsylvania family of six with two kids in college, with a mortgage that has been refinanced to help pay tuition, but which still makes a tithe to their church is looking at a triple whammy tax hike if these deductions go away or are limited. So would millions of other Americans.
Which is why reaction ranged from shock to anger when two Republicans on the so-called Supercommittee proposed attacking those very deductions this week. Pennsylvania's Senator Pat Toomey and Texas Congressman Jeb Hensarling, both credentialed conservatives, stunned their center-right supporters and Republicans across the country by proposing a plan to raise hundreds of millions of dollars of new revenues financed by the assault on these keystone deductions.
The AP's Stephen Ohlemacher described the Toomey-Hensarling ta hikes this way:
A GOP plan to raise taxes by $290 billion over the next decade would limit deductions for mortgage interest, charitable donations and state and local taxes as part of a deficit-reduction deal. Some workers could also see their employer-provided health benefits taxed for the first time, though aides cautioned that the plan is still fluid....
The top income tax rate would fall from 35 percent to 28 percent, and the bottom rate would drop from 10 percent to 8 percent. The rates in between would be reduced as well. A GOP congressional aide said the plan is designed to raise taxes on households in the top two tax brackets. That would affect individuals making more than $174,400 and married couples making more than $212,300.
The plan has already split the Congressional GOP, but its dire consequences are just beginning to be felt across the country. I have spent much of this week's radio shows talking to experts and callers about the Toomey-Hensarling tax hikes, and while an occasional supporter will speak in favor of all or part of its provisions --former Utah Governor Jon Huntsman for example-- the vast majority assailed the plan as bad policy, horrible politics and, crucially, a breach of faith with voters who sent the GOP back to Congress in November 2010 with a mandate to cut spending, not raise taxes and in the process of raising taxes, changes many of the crucial rules by which the country has operated for decades.
On my show Rick Santorum called the proposed package another "Read my lips" moment, harkening back to the promise which the first President Bush made and then disastrously broke in a "big deal" with Democrats 20 years ago.
Callers were fuming. One retired sheriff living in Calfiornia berated me for leading him to contribute to Pat Toomey's 2010 Senate campaign. Many others simply stated they would lose their house to which they were barely hanging on if the deduction was lost. A wise accountant friend laughed at the idea that slashing the charitable deduction wouldn't dramatically impact high income giver's giving. And when contributions fell, so would the services delivered by those groups and employment within the vast not-for-profit sector.
Where could such a horrific idea have come from? Why, from three economists of course, all from the National Bureau, and beloved by the purists at the Wall Street Journal and the Club for Growth.
Good for them. Let them put their plan before the GOP Convention and have it adopted as a platform.
Let them ask Speaker Boehner to amend, republish and then campaign on a revised Pledge to America, because the 2010 version said nothing about these radical measures.
That is the biggest problem with the plan: The new Congress was sent to D.C. to represent the cut spending/shrink government movement in the country, and it instead has produced a secret committee that is hurtling towards a massive tax hike --authored by Republicans!
Some Republicans argue it is either this or the automatic "sequestration" built into last summer's debt ceiling deal which would hammer defense spending with an unimaginable $600 billion in more cuts on top of the hundreds of billions already unwisely slashed from DoD's funding.
But the sequestration doesn't take effect until 2013, and there is an election between now and then which could empower a new president, with a new GOP majority in the Senate working alongside a the GOP majority in the House, to actually reform entitlements and control spending without raising taxes or slashing defense.
If the GOP that is already inside the Beltway embraces tax hikes, especially this ruinous trio of deeply damaging hikes, the message will be clear to many millions of voters: You cannot trust Republicans who promise to cut spending and keep a lid on taxes.
Not even for one year.
The Current FReepathon Pays For The Current Quarters Expenses?
The public were looking for fiscal responsibility through spending cuts. Our side refused to put the pressure on the left to go along or lose politically
instead we immediately folded multiple times included the McConnell idea to pass the buck to the white house and consistently negotiating from a weak position. Our side could have gotten some things through this Senate if they wanted to, or gained politically. Instead we have this supercommittee.
Gates and Buffett have dodged tens of billions in capital gains liabilities with their foundations - pushing up rates for the rest of us.
Mortgage deductibility encourages households to over-lever - and amplified the effects of the burst of the minority lending bubble.
Deductibilty of state and local taxes is the worst of all - it's a direct subsidy for irresponsible voting.
That last point can be illustrated by a simplified example. Imagine there is a 50% Federal income tax rate and only two states, NH and MA. In republican NH the state income tax rate is 0%, in Democrat MA the rate is 10%. Now imagine there are two taxpayers, one in each state, each making $100k.
Mr NH pays $50k in Federal taxes and takes home $50k, Mr MA pays $10k in MA taxes leaving $90k, of which $45k goes to the Feds and he takes home $100k -$10k -$45k = $45k.
The Feds hence take in $95k which they use to bomb rag-heads somewhere. But, if it weren't for the deductibility of state taxes they could drop the same number of bombs for a Federal tax rate of only 47.5%. I.e. the NH taxpayer is subsidizing the MA taxpayers poor taste in local government to the tune of $2.5k per year.
So why does Mr MA continue to vote Dem? Let's say that for his $10k Mr MA gets free schooling for his kid, While Mr NH has to pay $10k to send his kid to a private school. After expenses then, Mr MA has $45k of disposable income, while Mr NH has only $40k.
Of course in real life most of the MA revenue gets pissed up the wall or into the pocket of the public sector unions, but as long as Mr MA feels he's getting a better quality of life than Mr NH he'll continue to vote D and, thanks to the deductibility of state taxes, Mr NH is forced to subsidize him.
In my opinion, one could surmise that, instead of a concentration camp, those who Big Brother deems “undesirable” will be sent to a hospice center run by Big Bro and/or Big Sis. Sound familiar? Like history repeating itself? Never Again ringing hollow anyone?
The mortgage deduction was partially responsible for the mortgage bubble.
All that would happen is that people would be willing to pay less money for a house.
Unless of course you like seeing housing prices artificially inflated.
Republicans occasionally do take a break from slopping at the trough long enougfh to think about solutions to the problems destroying the country.
Democrats accept the destruction as inevitable and work hard and fast to grab all they can before the end.
Anyone remember PIGS and PALS..?
I think that Toomey is on the right track, but Hewitt correctly points out how damaging this could be initially. I would like to see a phase in..maybe over 3-4 years..possibly allow people to elect to use the current tax laws for 2 years, and then for the next two..split the difference between the taxes due under the old regs, and the new ones..
cut the charitable contribution, mortgage and state and local tax deductions AND the IRS and you have a deal. Fair tax....the only way to go
I understand we don’t have the Senate. The House does not have to approve spending the Senate and President want. Send the Senate appropriations bills for Labor, Agriculture, Education and Energy with reduced spending. the Senate can either approve the bill or not. If the Senate votes against the appropriation because it wants higher spending, the House can say no. The Senate can then either accept a lower spending level or by its failure to approve the bill choose to totally defund the departments because there will be no money appropriated for anything.
Boehner plays into Democrat hands by funding the government through continuing resolutions. He should play hardball and send individual spending bills by departments or agencies to the Senate and President. Make them choose to accept lower spending or defund the agencies. Use the Constitution’s powers instead of playing their game.
Boehner and McConnell are trying to play nice and are losing the PR war and doing nothing to slow spending. Bring government to a stop. They have the power. The Dems have no problem playing hardball. Obama is going to run against an obstructionist do nothing Congress. Why let him control the message? Do something!
“Eliminating the deductions for state and local taxes would help kill the blue states even faster.”
Thanks, I live in a blue state, as do hundreds of millions of other conservatives.
This is a DREADFUL idea and I spent 2 days calling Toomey, et al. to say so.
I spoke with a real twerp at the RNC who ended up telling me that if I myself were not willing to pay higher taxes the military would be decimated and the draft reinstated.
I also called the Club for Growth who told me this would only apply to second homes, which appears to be, shall we say, inaccurate.
Anybody who thinks this is a good idea is detached from reality. Were this to happen we all know how it will play in the long run. Deductions go away, rates go down, rates creep back up, deductions are never restored.
Even if this was some double-dog-dare on Toomey’s part it is still an incredibly stupid idea. They’ve slapped the Tea Party in the face and stabbed us in the back at the same time.
This plus Mitt at the top of the ticket spells DOOM for the Republicans next year.
Do these morons think the sought-after independents want to pay more taxes?
I’ve honestly never been this angry with the Republicans before.
Please makes some calls and let them know what you think. Hewitt is the only one blowing the whistle on this it seems.
E-mail almost doesn't count. What congressional staffers have told people actually works is snail mail. Hand-written, longhand, manuscript letters on heavy bond paper are the best way to go.
Staffers often separate issue letters out by issue and weigh them when the traffic is hot and heavy on an issue like this -- so don't use onionskin or airmail stationery.
The Beltway reasoning is, a manuscript letter someone cared enough to sit down and write, counts for ten other people who felt strongly but didn't have time to write. That's why longhand letters on personal stationery count more -- far more than e-mail, which anyone can dash off in response to an on-air call to arms from Rush or Beck or Mike Savage.
You only need one address to get your letter to your congresscritter:
Congresscritter X (party, state -- to relieve ambiguity)
THE CONGRESS
Washington, DC
You don't need an office number, a street address, a congressional building name, or a ZIP code. The Post Office has never lost the U.S. Congress in over 200 years, and they won't lose it now.
“The mortgage deduction was partially responsible for the mortgage bubble.”
People keep saying this, but I don’t think it is true.
My understanding is that mortgage interest has ALWAYS been deductible. The causes of the housing bubble were the Community Reinvestment Act which coerced banks to lend to unworthy borrowers and also the collapse of the tech bubble which drove investors into real estate. I imagine there were other reasons but I very much doubt that interest deductibility had much to do with it.
One thing mortgage interest deductibility is responsible for is the high rate of home ownership in the US.
But, I was always taught that was a GOOD thing. That it was in fact a big part of the vaunted American Dream.
And, just to add some facts for anyone who doesn’t know currently mtg interest can be deducted on first and second homes only and on mtgs up to one million dollars (with some grandfathered exceptions). Also, deductions are already reduced or eliminated for high income people. In fact my income is not all that high (as I said before I’m a blue state resident) but some deductions are reduced/eliminated for me.
So, despite what many people think millionaires and billionaires are not taking this deduction on their many, many, million dollar homes. I’m sure most of those people don’t even HAVE mortgages.
As for the estate planning of the mega-wealthy that is another category entirely. These tax increases (for that is what they will prove to be) will affect the middle/upper middle class.
As I said on another post somewhere it is amazing that the Republicans, rather than pandering to their base, seem to want to destroy it in order to pander to their enemies.
“These tax increases (for that is what they will prove to be) will affect the middle/upper middle class.”
Medicare, Medicaid and Social Security are going to need an infusion of funds that range in the TRILLIONS. How do you propose it be raised? Should those programs be cut? Good luck with that.
Nancy Pelosi, is that you?
OF COURSE those programs should be cut.
Here is my basic plan:
#1 - cut ALL the USELESS CRAP. NPR, CPB, Cowboy poetry, cow fart studies, all of that stuff, just stop funding it.
#2 - cut MOST of the possibly useful crap. UN Funding, aid to our enemies, aid to our friends, get rid of most of it.
#3 - end all pensions and other post-office benes for elected officials.
This would be my start, I realize it is probably not enough.
As to the military, I really don’t know enough to make any proposals, so I’ll leave that out.
As to the 3 biggies you mention I am not really knowledgeable about those either, but some things just seem to be clear.
#1 - Block grant medicaid to the states.
#2 - Possibly the Ryan plan for Medicare, income testing for Medicare, raise the age for Medicare.
#3 - Ongoing age raises for Soc. Sec. and re-jigger the increases to reflect inflation rather that “wages”.
#4 - Go through the fraud factory that is “Disability”, you can probably save billions by doing that.
So, those are my concepts.
Bottom line is the bottom line we have to CUT SPENDING.
"As to the 3 biggies you mention I am not really knowledgeable about those either"
Not a surprise judging from your suggested solutions. You seriously think that the old folks, all of whom vote & many of whom even on FR who scream bloody murder at just the idea of cuts "their" govt bennies, would allow that to go down? What that partisan hack Hewitt neglects to tell his audience is that painful choices are going to have to be made.
That doesn't change anything. It just means they were pushing home-ownership as a way to appease the laborers unions and the construction industry.
You have to decide what you want; do you want "stimulus" that stimulates the government/corporate/union-complex and help them grow, or do you want stable fiscal policy that keeps prices in line with actual value?
If you prefer special-interest "stimulus," just be honest enough to admit it.
PS - The fact is, not EVERYONE should own a home at all stages of their lives. One of the fundamentals strengths of the American economy has been the mobility of its work force. Tie people down to houses that plummet in value after they sign the loan papers, and you no longer have mobile work force.
Clearly these changes will have to be made over time, but they will have to be made.
It is true that we have all been dragooned into the current Soc. Sec. system so you can’t in fairness just end it for the current recipients.
I don’t like hearing over and over you can’t cut the small stuff, it doesn’t matter and you can’t cut the big stuff it’s too important. This attitude reminds me of some family members of mine who, no matter how many suggestions are put to them find fault with them all and concluded there is no solution to whatever problem they are facing.
Because there is no easy and painless cure doesn’t mean there isn’t a cure.
“Because there is no easy and painless cure doesn’t mean there isn’t a cure.”
Precisely. One set of cures which Hewitt the Hack pooh poohs is the subject of this article. If it came down to appropriately funding the Defense Department or preserving mortgage deductions, the answer should be obvious.
Even if ending this deduction is in and of itself a good idea now would be an exceptionally bad time to do it.
And it has not been the case that houses “plummet” in value like new cars, so that is just a red herring.
I lived in rental apts. my entire life until 3 years ago so I know all about them. In many cases your rent goes up and up. In other cases you have very little security if you don’t want to move. They may as well be counted as a stimulus for the moving van industry if you want to look at it that way.
But regardless of all these things the solution to our problems isn’t giving more money to the government. They’ve squandered much of what they’ve been given and they will certainly squander any additional funds sent their way.
Taxed Enough Already was the slogan I thought, not gee, let me ask what more I can do for my government and “the children”.
Let the democrats make these gimme more proposals, our side needs to find a better way.
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