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Friday, November 04, 2005

Tom DeLay and Robert Reich on Tax Reform

If you need it, here's more evidence that the recommendations of the Tax Reform Panel are politically DOA:

A Swing and A Miss on Tax Reform, by Tom DeLay, Commentary, Washington Post: In case you were wondering what that giant "whoosh" emanating from Washington was, it was the sound of the people on the President's Advisory Panel on Federal Tax Reform swinging and missing at the easy underhand toss that George W. Bush sent their way. ... [R]ather than taking the president's broad mandate for fundamental, comprehensive reform, the panel recommended preserving the basic elements of the "archaic, incoherent" monstrosity already on the books. ... This was a chance to scrap the Internal Revenue Code -- the 5-million-word monstrosity that costs American businesses and families billions of dollars and billions of hours to comply with -- once and for all. ... Instead, it proposed an array of incremental policy tweaks of the kind that one might expect to be presented in the president's annual budget.

Meanwhile, even the most cursory look at the panel's recommendations reveals a minefield of serious political trouble. Recommendations such as the reduction of the mortgage interest deduction and elimination of the state and local tax deductions may have sound economic arguments on their side, but they're an awfully bitter pill for Americans to swallow if all they get in return is a few deck chairs moved around on the Titanic. Those of us who have long advocated fundamental tax reform, for decades in some cases, have reason to wonder -- especially given President Bush's well-deserved reputation for thinking big -- "Where's the vision? Where's the boldness?" ... The American people are ready for this debate. They are ready for a debate about a flat tax that would gut the Internal Revenue Service and allow almost every American to file his or her tax return on a simple form the size of a postcard. They are ready, I believe, to learn more about replacing the income-based tax system altogether with a national sales tax, as in the FairTax proposal I have co-sponsored in the House. This plan would allow Americans to choose, based on their spending decisions, how much tax they would pay every year. ...

Capping the mortgage deduction has another strike against it - support from someone connected to the Clinton administration, Robert Reich, on equity grounds:

Mortgage deductions could use a ceiling, by Robert B. Reich, LA Times: In these dark days for the Bush administration, I've been looking for some light, something on which to lavish unequivocal praise. And here it is. The president's advisory commission on tax reform on Monday recommended a limit on the home mortgage interest deduction. ... As it is designed right now, it mostly benefits the rich, is grossly unfair and costs the Treasury a bundle. Here's how it currently works. Homeowners can deduct from their income taxes all interest paid on mortgages written for up to $1.1 million. ... But most people who rent their homes don't get a dime from the government to subsidize their cost of housing — and they generally have far lower incomes than homeowners. Nor does the mortgage interest deduction help most homeowners with modest incomes — those in the $20,000 to $50,000 range. That's because, at tax time, they take the standard deduction. ... You couldn't design a more regressive housing policy if you tried. The home mortgage interest deduction cost the Treasury $63 billion in lost revenue last year, and the rich got most of it. ... Enter the president's tax reform commission. It wisely wants to lower the million-dollar ceiling on the mortgage interest deduction to the size of an average mortgage in any region of the country. In today's market, the ceiling would range from about $170,000 in many rural areas to a high of $412,000 in high-priced housing areas such as Southern California. This is just good common sense, and fair.

The commission also wants to turn the deduction into a tax credit. ... Remember that tax credits are subtracted directly from the income taxes otherwise due. So anyone with a $100,000 mortgage, for example, would be able to subtract the same amount from their taxes, regardless of their incomes. Also sensible and fair. Together, these proposals would extend the tax benefit for homeownership to most middle-class and lower-income Americans. ... So the Treasury saves billions of dollars, average Americans get more help with their housing and the government's hidden housing subsidy to the rich is finally ended. The only problem is that these sensible ideas are probably dead on arrival. Realtors, mortgage lenders and home builders are already screaming bloody murder. ...

    Posted by on Friday, November 4, 2005 at 12:31 AM in Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (5)

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