Tax Commission revisited

[mikester]

boink!

[pwd72s]

Sadly, rule number one for any bureaucracy is to protect and expand the bureaucracy. Every tax "reform" I've read of comes to the same bottom line...it doesn't matter which pocket they lift it from, they're going to lift more. BOHICA!

[Jamie79SC]

I don't recall any instruction to be revenue neutral. I thought the main point of this comission was to enhance revenue.

[pwd72s]

And you believe this?

[on-ramp]

how else is Bush going to pay for the 7 Billion dollar Bird Flu vaccine?
the people will pay for it, like they always do.

[CamB]

Correct me if I'm wrong, but you're complaining about a potential tax change which would see your personal taxes going up but someone in Texas going down?

If it is revenue neutral at the federal level after removing the deduction, the implication is that the overall federal rate drops accordingly - you suffer only because your state taxes are higher (and what you lose from that deduction you don't gain from the lower tax rate) and because the present system contains a distortion, not because the proposal is unfair.

[red-beard]

Whoa whoa whoa...

The _real_ screw job is where they reduce the amount of House where you can deduct interest.

Reduced from over $1M to....$240K

Ha ha ha ha ha ha ha ha ha to all the California Real Estate Owners. You are now "con"-sidered rich!

[CamB]

The mortgage one is interesting (we don't have it, unless it is a rental. We also don't have state taxes - just a local property tax generally <0.5% of the value of the property pa)....

So - assuming revenue neutrality at the federal level (and I think you're right to assume that revenue neutrality will get abused), what will happen?

- there are less deductions, so the federal rate goes down.
- those using the deductions (unfortunately you) have less taxable income - the house buying populace (within that deductions scope) are less able to afford housing, so house prices go down, right?
- but, what about those who are renting - they now pay less tax (lower federal rate), so can pay more in rent, so house prices go up right?

I'd pick the prices would go down (renters less likely to want to spend tax saved on housing, plus landlords probably pay tax on the income from those renters), but maybe not by as much as expected. I would expect a shift to more landlords and less home ownership, mostly because there would no longer be a federal tax subsidy in favour of home ownership.

The problem as I see it is that the mortgage deduction is so deeply factored into house prices that there would be huge pain in its removal...

[red-beard]

The breakpoint for interest deduction on a house is presently about $1M. They are going to reduce it to somewhere between $240K-$420K. Which means that if you paid more than whatever the cutoff is for your house, you will only be able to deduct a percentage of your interest. So all of the high cost CA property owners will get severly screwed, while we here in Tejas will be only moderately, if at all, screwed.

And since I pay less in total state and local taxes, the loss of that deduction is not as big.

Plenty of room here and the schools are good. We'll leave the light on for ya.

[red-beard]

The income tax exemption is not the killer for CA. This one is!

The panel recommended lowering the mortgage-interest cap, which is the amount of a loan on which homeowners would receive a tax break for interest paid, from $1 million to the average regional housing price in the range of $227,000 to $412,000.

The deduction would be converted to a credit equal to 15 percent of interest paid on mortgages up to the interest cap. A credit is a dollar-for-dollar reduction of the taxes you owe, while a deduction only reduces your taxable income by a percentage equal to your top tax rate. Deductions benefit high-income taxpayers the most and are limited to those taxpayers who itemize on the federal tax returns.

Generally speaking, the higher your mortgage loan and the higher your tax bracket, the more likely it is that you'll see less of a tax break than you would under the current system.