Bipartisan tax plan trims mortgage deduction

[Roland99]

Source: AP (via Yahoo)

The plan would simplify the tax code by reducing the number of tax brackets from six to three, lowering the top rate from 35 percent to somewhere between 23 percent and 29 percent. That could provide a windfall for wealthy taxpayers because the 35 percent tax bracket currently applies to taxable income above $379,150.

To help pay for lower rates, the plan would reduce popular tax breaks for mortgage interest, health insurance, charitable giving and retirement savings. Other tax breaks would be spared, including the $1,000-per-child tax credit and the earned income tax credit, which helps the working poor stay out of poverty.

...

For example, current law allows homeowners to deduct the interest they pay on home mortgages of up to $1 million. One proposal would lower the limit to $500,000 and exclude mortgage interest on second homes.

Starting in 2018, the new health care law would tax high-priced health insurance plans. There are several proposals to adjust the tax to include more health plans while sparing lower-income families with more modest coverage.

Read more: http://news.yahoo.com/bipartisan-tax-plan-trims-mortgage-deduction-191345875.html

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Plus, multinational corporations get a break, too!

YAY! Save the rich and the global conglomos and make the poor and middle class (and the somewhat well-to-do) pay for it all. After all, that's the American way!!!

[CreekDog]

1. let me get this straight --if you're rich, your tax increase is offset by income tax rate reduction

but if you aren't rich, your taxes go up due to a limit in the mortgage interest deduction. your tax increase won't get offset because you won't make enough money to get a income tax rate reduction.

THAT SUCKS.

[The Magistrate]

3. And Are You Saying, Sir, That Is Not Fair?

Honestly, the hatred for success and wealth on display here is appalling....

[CreekDog]

6. better read it again sir

and tax increases on the wealthy are not "hate".

where did that come from?

[The Magistrate]

9. Care For a Quick Round Of Poker, My Friend?

Baby actually does need a new pair of shoes....

[CreekDog]

15. Again...please explain to me where i *hate* wealth

and for what it's worth, i have few financial worries.

[The Magistrate]

17. Too Dead-Pan For My Own Good Sometimes, Sir...

[CreekDog]

19. sometimes irony is wasted on me!

:rofl:

:hi:

[shanti]

8. did you you forget the sarcasm thingy? n/t

[Bandit]

31. No it is not fair

I believe in Progressive taxation.. That means that those that have more pay more.....When you start lowering the amount the wealthy pay and increase the amount the elderly and middle class pay, it most certainly is not fair...

[denverbill]

2. So the plan to solution to the deficit is to do more of what CAUSED the deficit. Cut taxes.

Fuck that.

[The Magistrate]

5. Exactly, Sir: Every Doctor Prescribes More Cigarettes Daily When Lung Cancer Looms

Only the rich can save us all, but they need more money to do it!

[4dsc]

4. more conservative economics for ya

I wonder when someone in the Democratic party is going to stand up to this SHIT DEAL and say NO FUCKING WAY.

[shanti]

7. mortgage interest deductions

are the heart of home ownership and they're cutting that?? of course, it won't affect the wealthy at all as many times they don't even have a mortgage! what about mortgage credit certificates? bet they lower the rate on them too!
:grr: :mad:

[amandabeech]

46. Reducing the mortgage deduction will not help the housing market,

which I thought was a goal of this administration. Those houses will just sit around and the toxic securities built around them will just rot on the financial communities' balance sheets.

I've never been able to really afford to buy and I've moved around too much to have made it worthwhile. My tax deductions were eliminated by Tefra in 1984--they went to extend the mortagage deduction for second homes and in-the-money second mortgages. Most years I would be better off if there were no deductions and lower rates, but this plan isn't going to do that.

How this is expected to pass the House, I'll never know.

[Puppyjive]

10. Mortgage Deduction

In all honesty, the mortgage deduction does not do anything for those who cannot beat the standard deduction, which I believe is a lot of middle class Americans. We work hard and do not own anything other than our house (which we owe a mortgage),so we can't use the mortgage deduction. And for the charitable write offs that the rich take for their charitable deductions, I can tell you as someone who volunteers for a non-profit. Most of the rich around here donate crap and then ask for their paperwork to write off their crap that they don't want to pay to take to the landfill. THE GAME IS RIGGED AND HAS NEVER BENEFITED THE WORKING POOR. This is what class warfare is all about.

[HuskiesHowls]

11. In 40 years of paying mortgages--

We (my wife and I) have NEVER been able to take a deduction for mortgage interest. Living where housing prices are low, using the local small-town bank with low interest rates, makes for not much interest.

As I think about it, I don't recall even being able to take anything other than the standard deduction!!

[onethatcares]

13. including healthcare deductions, or any of the others

seems every year, no matter if I was self employed or working for someone, I always fell into the bracket that I had to pay about 1K in on April 15th.

No matter what the deduction used on my w-4.

[FreakinDJ]

26. Gee - do you need an accountant

[tnlefty]

12. A belated wdcome, Puppyjive!

:hi: We lost it in the 6th or 7th year and we're not in the upper middle class, nor the working poor. Yes, the game is rigged.

[seabeckind]

14. Is not true

If a family buys a house and has a mortgage payment equal to somewhere around 25% of their income, well within the safe recommended range and they have state and local taxes and other deductions, they will beat the standard deduction.

It is only when the mortgage interest drops below a certain threshold (one I passed awhile back) that the standard becomes a better deal.

The republicans have been trying to get rid of this deduction since Reagan. I remember the fight then -- but we had some democrats then. We lost other loan interest deductions in that tax "simplification" but managed to keep the mortgage one.

I haven't had any charitable deductions for a long time. And I donate. The rich do it as a shelter, period -- lower their bracket, whatever.

The warfare is over. They're dividing the spoils now.

[PSPS]

16. Well, say goodbye to democratic control of any branch of government in 2012.

The lesson of 2010 couldn't be any clearer.

I can understand the mortgage deduction limit. Anyone with a house worth over $500K can do without the interest deduction of the amount over $500K. (You'd still have the interest deduction on the value up to $500K even if it's worth more.)

But the lowering of the already lowest-since-1915 tax on the rich just boggles the mind. This plan would reduce the taxes on the rich by a whopping 35% when they should be going up. Way up.

[creeksneakers2]

20. Few are talking about something else in there

The plan calls for a "competitive territorial tax system." In English, that means that multinationals would no longer pay a cent of US taxes on any money earned outside of the country.

http://www.jeffersonwells.de/InControl/Fall2010/International-Tax-Reform.htm

[FreakinDJ]

27. That would be Corp Tax Code

and I agree it needs to be done

[creeksneakers2]

37. Not only would it cost revenue

It would make overseas investing even more attractive to multinationals.

[DallasNE]

18. A Bone Of Contention

How does eliminating 3 rates from the tax schedule simplify anything. It is all computed by the software anyway. For those few still doing it the long-hand way they go to the tax table that says within this $50 range your tax is "x" dollars. It can't get any more simple than that. Even for those with income above the tax table it is "x" dollars plus "y" percent times dollars in excess of the table limit. It matters not how many rates are behind the scene so it is false to call this tax simplification. Eliminating the top rate is a tax cut for only those making over $379 thousand and should be properly labeled. While I am for true tax simplification I am not for a tax cut enjoyed only by the top 2% -- that sucks.

[creeksneakers2]

21. When they say "retirement savings"

they are talking about cutting the tax breaks for 401Ks. That would hit working people. All the talk the GOP has ever given about wanting to encourage investment was a lie. They only want rich people to be encouraged to invest.

[Leontius]

22. GOP lies heaven forbid but remember the President supports

this pile of shit and he's a true blue Demo, never mind.

[Lance_Boyle]

33. Is there a 'tax break' for 401K contributions?

I thought they were tax-deferred, meaning that you pay income tax at the going rate for your income once you start drawing on them. :shrug:

[creeksneakers2]

36. Yes

And I believe there is a tax credit too now, though it goes down for income over $30,000.

[Lance_Boyle]

39. What is the 'tax break?'

If you mean that your taxable income is lowered by the amount you contribute, realize that you're only *postponing* paying taxes on it. When you take it as income, it's taxed as income. I have never heard of a tax credit for voluntary 401K contributions. Any more information on this?

[creeksneakers2]

48. You are postponing it as income

until a time when you probably would be in a lower tax bracket.

Here's a link about the credit:

http://www.research401k.com/401k-tax-credit.html

[Bragi]

23. Mortgage inerest deductibility is a REGRESSIVE tax policy, right?

That's a question. I ask because it seems to me that this deduction is regressive, not to mention socially and economically dysfunctional (as it encourages higher mortgage debt).

I understand that any change to it would have to be done carefully to not hurt middle and low-income home owners, but I don't see why progressives should support retaining this tax policy.

So what is the progressive case, if any, in favor of this tax deduction?

[Gormy Cuss]

24. By encouraging home ownership for lower and middle income households it reduces rental demand

and when demand is lower, prices are lower so renters benefit.
Moreover, if the deduction makes mid-range housing more affordable for those same households, it frees up lower cost residences for purchase by lower income households.

Home ownership has been shown in several housing economics studies to be the best (and often only) avenue for wealth accumulation (that is, increasing the assets of the person or household) for people who are at or below median income levels. Here's one citation:
http://www.huduser.org/portal/publications/HOMEOWN/WAccuNHomeOwn.html

[Bragi]

25. I'd prefer a program targeted at low and middle income families

Households earning more than $200,000 a year account for less than 10% of the returns, but get 30% of all the benefits. And households earning more than $100,000 a year get 69% of all the benefit. The mortgage-interest deduction might be a middle-class tax break, but realistically it’s an upper-middle-class tax break.

http://blogs.reuters.com/felix-salmon/2011/07/12/chart-of-the-day-where-does-the-mortgage-interest-deduction-go/

Seriously, from the standpoint of wanting progressive tax policies, this tax break is indefensible.

It should be phased out, with off-setting transitional support being given to low and middle income earners.

[Gormy Cuss]

29. There are programs targeted at low and middle income families.

HUD and state housing agencies have numerous programs already.

Part of the reason that the mortgage interest tax deduction now disproportionately benefits higher income households is that the standard deduction has been indexed so effectively and that EITC and other credits have reduced income tax liability for so many households. Otherwise, it would still benefit somewhat lower-middle income households.


eta: while I'm presenting the arguments for how it's beneficial, I'm no fan of the current structure of the deduction.

[Roland99]

34. Not sure if I'm middle or upper-middle but this deduction is great for me right now

but, I did just buy a house so it's a lot of interest each year right now due to amortization tables.

I feel bad for those who bought in my development just 2-3 years ago at the peak of prices (some paid almost double what I paid for mine new)

[harun]

28. Unfortunately the deduction lately has encouraged massive debt

not wealth. Where people felt they should take these massive loans on massive houses so they could have a massive deduction.

They should promote affordable housing, not debt.

[Gormy Cuss]

30. Generous inclusion of second residences and home equity is more of a culprit there.

The proposal to limit the eligible amount and disallowing it on all but a primary residence would remove much of that incentive. Disallowing deductions for home equity loans and PMI would also help in that regard.

[Bragi]

32. No matter how you rejig it, it would still be regressive

It's like the Bush income tax cuts. Sure, some of it goes to low and middle income, but most of the benefit still goes to people with higher incomes. The same is the case with mortgage interest deductibility. Since people with more income will always be able to run up higher mortgages, they will always benefit disproportionately.

[Roland99]

35. Not necessarily

someone making less than, what, $40k-50k/yr and with a family pretty much won't pay anything in Federal taxes after standard deductions, child tax credit, exemptions, etc.

A family making about double that would pay Federal taxes, though, but the mortgage interest deduction can lower that significantly (at least in the earlier years of the loan)

[Bragi]

38. I think that supports my point

You wrote:

someone making less than, what, $40k-50k/yr and with a family pretty much won't pay anything in Federal taxes after standard deductions, child tax credit, exemptions, etc.

And that person would therefore not benefit from any mortage interest deductibility, right?

And you then wrote:

A family making about double that would pay Federal taxes, though, but the mortgage interest deduction can lower that significantly (at least in the earlier years of the loan)

Right, so the family making twice as much benefits, and the family that makes half that amount doesn't.

That's exactly how a regressive tax works.

(Or do I misunderstand something here?)

[Roland99]

41. There's no additional tax burden on the family making less money

they're already paying no taxes.

[Bragi]

42. I guess its how you look at it

I think any tax measure that pays out benefits to higher income families while doing nothing for lower income families is an inherently regressive tax measure.

[Roland99]

44. It's just giving tax breaks to those who otherwise wouldn't have any

What more can be done to those who don't pay taxes (but many still get large refunds due to the EIC, Child Tax Credit, etc.)?

[Gormy Cuss]

40. But a cap on mortgage amounts and residence type minimizes that incentive

while providing accessibility to more lower income families. That wealthier households have a greater benefit is pretty typical of most common deductions. It would be possible to reduce the regressiveness even further through an AMT-like test where the interest is eligible for the deduction only if it exceeds a percentage of AGI.

However, eliminating it outright would not change the buying behavior of the wealthy (the one percenters) and probably would have little impact on the behavior of the upper income households (the top 10%.) These are people who generally have other ways to shelter income to reduce taxes.

It would probably have an impact on the behavior of those in the middle (earnings in the fourth decile and bottom half of the top income deciles) because that's the group most likely to need interest to hit the threshold for itemized deductions.

[karynnj]

45. As long as they keep it on loans over $500,000 and have that inflation adjusted,

I suspect that it will not be the bottom half or even the bottom 80%, who are affected. I doubt they are buying $600,000 homes (1.2)*500,000 because they likely need 20% down. I agree the top 2% would likely not change their purchases. I do suspect that many in the top 10% will be hit. For some, it will change the cost of house that they will look for - and for those currently in homes with huge mortgages, some will be in big trouble as they counted on that deduction.

[Gormy Cuss]

47. Some in the top 10% are likely to have limitations on its usefulness already

because of the AMT. Those further down a little bit the income ladder (still well within the middle to upper middle income range, especially those with incomes in the fourth quintile) are more likely to be in a position to adjust their purchase decision because of the reduced or removed deduction on mortgage interest.

The upside is that would likely exert a downward pressure on units and thus increase affordability for those who are now closed out of the market. The downside is that if that occurred many current owners would lose more equity and that will affect even lower income owners.

[karynnj]

43. I don't like a lot of this, but how many middle class people have $500,000 mortgages ?

Thta provision and the one taking away the deduction for second homes are more likely to hurt the wealthy.