Posted on 11/02/2005 5:57:15 AM PST by austinite
The Presidential Advisory Panel on Tax Reform has released its recommendations on reforming and simplifying income tax laws, with the result that the real estate industry was expecting -- the panel is suggesting eliminating the mortgage interest rate deduction and giving a credit of 15 percent of mortgage interest paid to all homeowners. Currently, only homeowners who itemize take advantage of the mortgage interest rate deduction. In addition, a $1 million limit on mortgages eligible for the tax break would shrink to the average regional price of housing, ranging from $227,000 to $412,000.
This is one time that robbing the rich might not work. Home values have escalated dramatically, causing more people to borrow more money and put less money down when buying a home.
Outgoing NAR President Al Mansell, speaking at the opening session of the National Association of Realtors convention in San Francisco last week, warned the panel before they made their recommendation that cutting the mortgage interest rate deduction would hurt middle-income families the most and it could cause a housing bust of as much as 15 percent of home values.
"Eliminating the mortgage interest deduction would hurt middle-income families the most," he said. "According to IRS tax return data from 2003, 52 percent of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000."
In addition, the typical homeowner could lose $20,000 to $30,000 in housing equity.
"Housing is the engine that drives this economy and to even mention reducing the tax benefits of homeownership could endanger property values," warned Mansell. "The tax deductibility of interest paid on mortgages is both a powerful incentive for homeownership and one of the simplest provisions in the tax code. It should not be targeted for change," Mansell said. "NAR will continue to tell Congress that Realtors® strongly oppose any attempts to alter the current tax treatment of mortgage interest."
Mansell urged reformers to look at the past -- The Tax Reform Act of 1986 proved that when the tax benefits associated with real estate ownership are curtailed, the value of real estate declines. In this case, the resulting loss of value in the commercial real estate sector was 30 percent, he said.
The current cap permitting deductions of the interest paid on mortgages of up to $1 million has not been modified or indexed since it was adopted in 1987.
"We are surprised that the panel would even consider reducing the cap," said Mansell. "Basing the cap on complex regional loan limit calculations makes no sense. In California alone, more than a dozen Federal Housing Administration (FHA) limits are in effect in various parts of the state."
The panel appears aware that its recommendations are "bold," and Treasury Secretary John Snow said he did not know what ideas the administration would embrace after the Treasury makes it recommendations.
"Now it's up to us," Snow said. The Treasury Department will "take the report, review it carefully, understand the implications and use the report as a starting point for recommendations that we will make to the President."
"The effort to reform the tax code is noble in its purpose, but it requires political willpower," the group said Tuesday in a letter to Snow. "Many stand waiting to defend their breaks, deductions and loopholes, and to defeat our efforts."
An AP report suggested that "members of the panel urged taxpayers and lawmakers to look at the whole plan, not just individual components," so they would know that "withdrawn tax breaks" would be replaced by "simpler benefits."
As the tax-writing House Ways and Means and Senate Finance committees will review the recommendations, so will the NAR. The Board of Directors has pledged to authorize a report on the financial impact of the loss of the mortgage interest rate deduction.
I challenge you to go back through every message I've ever posted here on FreeRepublic over the last five years and find a single case in which I've ever advocated "punishing success" and "rewarding failure."
I have to admit that I find it very funny to see all of these examples right here on this site of so-called "conservative" people who are willing to put their principles aside simply because they benefit from something that they would consider an outrage under any other circumstances.
"There is absolutely no reason why the U.S. taxpayer should be subsidizing homeowners and the real estate industry."
This statement alone shows that you believe that all money rightly belongs to the government and any money that the government does not, by threat of violence, remove from a taxpayer's pocket is a "subsidy."
PS - Did you know homeowners are taxpayers? Did you know they pay boo-coo property taxes, which are the primary source of funds for the socialist public education system?
You seem pretty ignorant, so I just wanted to make sure.
Simply put, it appears that for anyone with a tax rate much greater than 15%, then this proposal will work as a tax increase:
Simple example: 200K net income after taking a reduction of 40,000 for mortgage interest paid (gross 240,000).
assume 30% tax on 200K
tax on current system: 60,000 in taxes
Now, instead of deducting the 40K you go with this new system:
240,000 x 30% = $72K less 6K "tax credit" = $66,000 in taxes owed.
This crap is nothing more than income distribution once again, and the middle class gets screwed. Moreover, how is this going to affect mortgage interest on business offices, second vacation homes?
Unless this is phased in gradually, you are looking at a Depression. The only people who would be for it are the:
the extremely wealthy who are not dependent upon the real estate market or housing industry for their continued success, or who don't really care if their real estate holdings take a 5 to 10 year hit, and who can also weather a strong recession/mild depression; and,
the lower class who are renters and are too stupid to understand how this plan could really screw up the economy along with their chance for gainful employment (I guess they hope to one day see housing prices fall so they can get that starter home for under 100K along with that longed for above ground pool, pink flamingos in the front yard, and enough outdoor electrical outlets to power 50,000 christmas lights so as to beat out Verne's display next door).
One more thing. I'm all for tax changes that will either reduce the general tax taken and/or bring about a more simple efficient system.
But this can't be done on a drastic scale such that it punishes the vast majority of WORKING americans who have played by the rules, saved their money, made down payments, put in sweat equity to improve existing properties, taken entreprenurial chances based upon the existing tax structure, and have generally honored their obligations under their social contract with this government and their fellow citizens.
People who advocate doing away with the mortgage interest rate deduction are, in all likelihood, class envy idiots who don't realize how this can end up screwing them due to a recessionary economy. Even those who live in a house which they have paid off and don't owe a mortgage will suffer due to the falling value of their home.
Whatever simplification is done to the tax code has to be done such that homeowners who relied, in good faith, upon this deduction, don't get the shaft.
Baloney.
The example I cited earlier on this thread illustrates my point perfectly. If the tax code permitted me to deduct my monthly payments and insurance costs on a Ford car, but didn't extend this deduction to you because you own a Chevrolet, I am quite sure that you would rightly describe this as a "subsidy" for owners of Ford vehicles.
All tax breaks are not equal, despite the vehement objections of people here on this thread who derive a substantial benefit from the mortgage interest deduction. The fact that the government should allow people to keep as much of their money as possible does not make it right when it extends tax breaks to specific types of people at the expense of others.
By your logic, any tax break would be a good one because it does, after all, allow someone to "keep more of their own money." If that's the case, then I'd suggest that you would be perfectly comfortable to income tax breaks for African-Americans, for left-handed people, for gasoline costs for lime-green Toyotas, etc.
Did you know homeowners are taxpayers? Did you know they pay boo-coo property taxes, which are the primary source of funds for the socialist public education system? You seem pretty ignorant, so I just wanted to make sure.
You seem pretty ignorant, too. So I'll let you in on a little secret -- people who rent their homes are also taxpayers, and are also a source of funds for the socialist public school system, etc. If I own a home and rent it to a tenant, you can be damn sure that I'm including the property taxes in the tenant's rent. If my taxes are $4,500 per year on the home, then the rent I charge will include consideration for $375 per month in property taxes. If my property taxes go up to $6,000 per year, then the rent I charge is going to go up by $125 per month to account for the higher taxes.
So basically this is what it comes down to . . . You live in a house and pay $6,000 in property taxes directly, so you get an income tax deduction. My tenant lives in an identical house and pays $6,000 in property taxes indirectly through his rent, so he gets no deduction. How ridiculous is that -- you get a $6,000 deduction just because your municipality sent you a tax bill?
Actually, I do believe that.
The fact that you don't means that you are a statist who believes that the government knows better than the individuals who earned it how to spend their money.
I agree with you 100%. Let's be fair, though -- the current mortgage interest deduction is nothing more than an "income distribution" measure itself, isn't it?
Unless this is phased in gradually, you are looking at a Depression.
That's right. I wouldn't expect the tax code to undergo such a dramatic change without being done over an extended period of time.
Bullsh!t. My lack of support for targeted tax policies is simply a reflection of the fact that the term "equal protection under the law" actually means something.
I'm all for a flat tax or a national sales tax. I don't see one, do you? Until that time, since all we have are "targeted" taxes, all we can hope for are "targeted" tax breaks.
Quit taxing interest income and I would be all for abolishing the mortgage interest deduction. Until then, I'm fighting for every deduction I can get.
PS - Take your "Bullsh!t" and shove it where the sun don't shine.
If you don't like it, then don't dish it out yourself (i.e., "You seem pretty ignorant, so I just wanted to make sure.")
Mine was an accurate observation. Yours was a profanity that served to prove my original assertion.
The information I posted in #105 clearly refuted your "accurate observation" in #102, so I don't know what you're getting at.
Just put my money where my mouth is...bought my third home about a month ago.
I echo your sentiments...."buy, buy, buy"!
(But remember "location, location, location".
Do you know how many old people are driven out of their homes by ever-rising property taxes? People living in apartments don't pay nearly as much property taxes, and they are the ones who have most of the kids in the schools.
I agree with you 100% on this, but taxation of income and taxation of property are completely separate issues.
I have long advocated the elimination of property assessments in the calculation of property taxes. Property taxes should be based on something tangible that bears some relevance to a property owner's "burden" on public infrastructure -- like linear feet of roadway frontage (for street maintenance costs), land area (for drainage), etc. There is no reason why a person who owns a small house on a small piece of land that is worth $500,000 for some reason (say, a beautiful mountain view) should be paying higher property taxes than a person who lives in a large house on a large piece of land that happens to be worth $400,000.
I'd also support any move to eliminate public schools entirely, or at least impose taxes on people based on the number of kids they have in the public school system (again, completely separating the notion of property ownership from the costs of public infrastructure).
Okay, you win, you can talk longer than me.
You have yourself a great day. ;-)
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