October 19, 2005
President’s Tax Panel
Kevin Drum over at Washington Monthly has given a nice overview of who’s ox gets gored with the tax panel’s recommendations. He comes at this from the liberal side, so obviously he’s looking more at whether or not the rich are helped, rather than the effects on the economy in general. But that being said, it’s a good writeup.
I’ve previously railed against the tax panel for being a bunch of snivelling, spineless, no-good cowards, who care more about playing around the margins than actually asking for meaningful reform. Of course, I didn’t expect them to come out and advocate changing to the FairTax, but I didn’t expect them to treat it like a straw-man either.
But I wanted to take a couple of Kevin’s bullet points and go into a little more detail on those. Some of them are bad but not bad enough to really raise my ire right now, and some of them are actually good (such as the end of the AMT and the reduction of taxes on investment). So I’m just going to go after the ones I think are horrible:
Eliminate and replace the home mortgage deduction with a 15 percent credit for mortgage interest paid during the year. The size of a mortgage eligible for the credit would be limited to the Federal Housing Administration loan limitation, which varies by geographical region but averages about $265,000. — This is even worse than before. Previously they were just going to eliminate the deduction on very large loans. While that would have been insane and horrible, it is just a way to soak the rich. Even many of the people now in California who have expensive properties have worked their way up to those, and thus their loans aren’t enormous. But now, they’ve ensured that the deduction basically is only a deduction if you’re in the 15% income bracket. For someone like me who’s farther up, I’ll basically only be able to deduct about half my interest payment. That means that this proposal won’t just wreck the high-value homes, it will rip a hole in the middle-class housing values too.
Employer-paid health insurance premiums above $5,000 a year for an individual and $11,500 for a family policy would be treated as income to workers and taxed accordingly. — As I’ve said before, in an ideal world, I would like this. It would get us closer to a market in health care, where people have to internalize some of the costs and thus consider a cost-benefit relationship when picking insurance plans. I happen to think that would reduce the average health care costs. For example, I would pick a high-deductible, low-premium plan as my health care expenditures are very, very low. I can afford to pay the little stuff out-of-pocket, and at my age there is no reason to pay huge premiums for my care. But, this isn’t an ideal world. The end result will be employers ending their health care plans for employees, and a huge number of people who now expect “somebody else”, namely the government, to step in and provide their care.
No deduction would be allowed for state and local income and property taxes. — Great. So we’re taxed on taxes we’ve paid. Not that our government really cares, because there are a host of taxes they charge on after-tax income. For example, gasoline and excise taxes. And I do understand that they had to stop allowing state sales taxes to be written off, because it is simply too complicated to keep track of all the receipts and sales taxes for a year. But this is different. They’re taxing income that has already been paid as taxes on income. And that just seems wrong.
Personal exemptions and deductions and credits for children would be eliminated and replaced by a credit of $1,600 for a single person, $3,200 for a couple, $1,500 for each child and $500 for each other dependent. — This one I can’t quite figure out. The only people who itemize are the ones whose deductions exceed the “standard deduction”. It seems that this would end the standard deduction, turning everyone into itemizers? While I do think that would make things more “fair”, as renters rarely have enough deductions to itemize while homeowners do, I have to think this will add enormous complexity to the tax filing system. If anything, this seems like a major giveaway to tax preparers, because so many people will need help to be able to itemize correctly.
Basically, my biggest problem with this tax panel is that the only bold steps they’re taking here are incredibly bad ones. They’re screwing over all homeowners at a time when many analysts think the market is overvalued. They’re messing with people’s health care, basically ensuring that companies will stop insuring their employees. And it seems that they’re trying to force every taxpayer to itemize, which is a joy I’ve never experienced, but will finally see in a few months.
They aren’t doing much to make the tax code simpler, the changes may be fairer in the long term but will have drastic short-term transition effects, and only one portion (the investment changes) will help economic growth. My only hope is that Bush rebukes them and calls them out for wasting his time. But I have a feeling that he’s just going to accept their recommendations and we’ll all get screwed.
How to Ease Transition Costs? :: The Fair Tax Blog linked with How to Ease Transition Costs? :: The Fair Tax Blog
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[...] We have an enormous, unmanageable tax code. It’s got so many loopholes and pitfalls built into it that an average person just can’t comply. What is important, however, is just how much of our current market and pricing system is built around all those loopholes and pitfalls. The immediate visceral reaction to the President’s Tax Reform Panel illustrates my point. We all want a fairer, simpler income tax. But any time you try to close a loophole, you get a huge cry from the beneficiaries of that loophole. The Tax Panel wants to make some major changes which will affect millions of taxpayers, and which might be positive changes, when considered on their own merits. But the immediate transition will be ugly. [...]