Next up - losing tax deductions for interest on home mortgages and

[Democrat 4 Ever]

health insurance premiums.

Yep, it is official - the GOP hates the middle class. I'm thinking this will piss off the repugs' "good ol' boy, God fearing, gun toting, terror stricken base" just a bit. Taking two of the more popular tax deductions from the people who need them the most. Do you think this will wake up the freepers from their stupor?


From NBC's First Read email -

---------------------------------------------------------
First Read: The day in politics by NBC News for NBC News
---------------------------------------------------------

The drama in Washington today centers on efforts to get to the bottom of conversations, and the ultimate result of one such effort may be the indictment of one or more Bush Administration officials, which would be a big deal. But don't lose sight of something that might be of greater immediate interest to the public: the fact that President Bush's tax reform panel, which is expected to send him its recommendations by November 1, is proposing to scale back two of the nation's most popular tax breaks, for home mortgage interest and employer-paid health insurance.

The panel is proposing the rollback as a way to compensate for its also-proposed elimination of the alternative minimum tax, which is affecting more and more middle-class taxpayers every year and is in serious need of fixing. Still, as one Washington-based economic analyst points out to First Read, while this may be good policy, it won't play well in town halls. Unless these recommendations somehow go away between now and November 1, tax reform may not look so much like the savior of the GOP domestic agenda.

For more: Today's edition of First Read is available now at http://www.FirstRead.MSNBC.com !

[Mayberry Machiavelli]

1. But we gotta get rid of that "death tax" on 3 million dollar estates!

Wouldn't want to hurt the poor farmer or small businessman!

[central scrutinizer]

2. "KABLOOOOOOOEY"

That is the sound of the housing bubble going nukular

[ProfessorGAC]

8. Actually, Wouldn't Be A Sucking Sound, When. . .

. . .the bubble IMplodes? It's already straining under its own weight. Take away that deduction and even 5% rates won't be very attractive on $500k McMansions.

I'm glad my house is nearly paid off. My deduction for interest is miniscule now.
The Professor

[central scrutinizer]

11. true, it will be more like a black hole

sucking everything else into oblivion with its massive gravity.

[ProfessorGAC]

15. Better Still!

Full collapse under its own gravity. I like it!
The Professor

[Wapsie B]

3. Remember when they eliminated personal interest

as a tax deduction? Screwed a lot of people big time. Just another way backdoor way to increase taxes. And the fools bought it. H.L. Mencken was right.

[slackmaster]

4. Tax Reform Act of 1986

I was working for a retail bank at the time and owed several thousand dollars on a car loan. The deductibility of consumer loan interest was phased out over three years. I got screwed to the tune of hundreds of dollars at a time when I was making around $20K per year.

[raccoon]

16. I think that was also when income-averaging was phased out.

Also, it used to be unemployment checks weren't taxed. They are now.

As a poster pointed out above, eliminating tax deductions is a back-door way of increasing taxes.

I'm not an accountant nor a tax preparer, so I don't know a lot about this. If somebody else out there is, chime in.

But over the years, the average American's deductions have been going the way of the eight-track tape.

[slackmaster]

5. Limiting deductibility of home mortgage interest makes some sense

Right now I believe you can deduct up to $1 million per year in mortgage interest. Cutting the limit down to $10K or $20K would hit the wealthy for more tax without doing any harm to us normal folks.

The panel is proposing the rollback as a way to compensate for its also-proposed elimination of the alternative minimum tax, which is affecting more and more middle-class taxpayers every year and is in serious need of fixing.

The AMT serves the same social function as inheretance tax. Both have the same flaw - They were not indexed for inflation.

[stopbush]

14. This will kill the middle class.

The rich are in the position to pay cash for just about anything they want, or to get the lowest possible interest rate on something they choose to finance. Eliminating this deduction or even limiting it won't phase them at all. It will hurt those of us who finance our homes because it's the only way we'll ever be able to own a home. Imagine trying to resell your home in about 5 years with interest rates up and none or only some of that interest deductible. Who would buy in such a market? That would create too much supply which would drive home prices down and rents up. Homes would be devaluing like crazy. Couple that with the second mortgage many are now holding on their home equity (which would evaporate) and we'll have civil war on our hands.

Not only that, but the Rs are looking to eliminate a deduction on interest that most of us will be paying over 30 years. And the Rs are the ones who bitch about changing the rules in the middle of the game. Sweet, eh?

Why do visions of old man Potter suddenly spring to mind?

[nvliberal]

21. Do you honestly think the tax panel is going after the rich?

Spare me, please.

We had a similar war on the middle class back in 1986, when IRAs were severely curbed.

What was once a very popular tax deduction is now used by a tiny minority of taxpayers.

[onenote]

23. i thought you could deduct the interest on up to a $1 million loan

Not $1 million in interest.

I could be wrong, but that's how I understood it.

onenote

[okieinpain]

6. wow, what would be the purpose of owning a home. a apartment would be

better.

[1932]

7. These deductions work to subsidize profits of insurance cos and banks.

It's definitely important to subsidize the wealth and happiness of people who need help. Our society is better off when poor people can afford to own homes.

However, by giving these tax breaks to everyone, it simply puts the government in the position of subsidizing profits for private companies. Just look at housing prices. Mortgage interest deductibility encourages people to spend more than they would for their homes. Who benefits? If you're selling your last house and dying or moving into a rental, I guess you can win, but if you're selling your house and have to buy another house, you don't win by seeing prices inflate across the board.

But who wins every time with this? The banks. People take out bigger mortgages and they pay more in interest to banks.

The answer obviously isn't to completely get rid of the deductibility of mortage interest, but there should be a compromise that doesn't drive prices up for everyone. Here's where I see that balance: mortgage interest deductibility has to be tied into income so that if you don't really need the deduction, you don't get it, and/or perhaps the government should get directly into the business of providing loans for low-income people so that you only get the deduction if you have a federal home lone -- that way the government ends up subsidizing the profitablity of the government and not the profitability of private corporations.

The same logic applies to health insurance.

[stopbush]

18. "Mortgage interest deductibility encourages people

to spend more than they would for their homes."

????????

I've owned two homes, and that angle never entered my mind as I contemplated buying. I was concerned about the base price and the interest rate. I wasn't sitting there thinking "I can spend more because I'll get a bigger deduction at tax time."

Maybe I'm just stupid, but if that were the case I'd want the highest rate possible, maybe with a reverse balloon where the interest rate would decrease over time.

[1932]

19. Even if people didn't think about it, it's a reason home owning is

affordable even at high purchase prices.

If you are in a home that costs X dollars per month and you're benefitting from the deduction, you have a benchmark for how much you can afford for the purchase price of your next home, which encourages you to go up to X+Y. So, it works even on an unconscious level.

However, I do know people who definitely do the math consciously when budgeting for their new mortgage.

Also, this is a reason interest-only mortgages are affordable for people even if, long term, they make you pay even more for your home (the profit from which is generally going to the bank) -- which addresses your last paragraph.

[borlis]

9. When I got married 17 years ago

you were able to deduct interest on car loans and credit cards as well. Whats's left for the middle class??

[mike_c]

13. how about staying out of debt....

Seriously. As some other DUers have pointed out, the ultimate beneficiaries of these deductions are ALWAYS financial institutions whose profits depend upon the middle class financing the good life with increasing amounts of debt.

[rateyes]

10. Wouldn't one call that...

a tax increase? So much for "tax-cutting" repigs.

[gratuitous]

12. Is it a complete elimination, or a rollback?

I mean, allowing total deductibility for some wealthy yahoo to have a McMansion in Florida, Texas, and Maine seems like a weensy problem that should be addressed. If they're talking about eliminating the deduction on every mortgage everywhere so that they can enact the Paris Hilton Tax Repeal (hasn't she suffered enough), then there's gonna be a problem.

[ProdigalJunkMail]

17. the tax deduction on interest payments will be rolled back

from $1million to about $350,000...I don't know of too many middle classers (outside of a few housing bubble areas) that have more than $350,000 in mortgage debt...if they can afford that much debt, middle class is not a term I would apply to them.

subjectProdigal

[yellowcanine]

20. $350,000 is less than the median price of a house in some areas.

And it isn't all "rich people" buying them. I suspect that this is just a starting point. By the time the kleptorepublicans are finished, they will probably RAISE the tax deduction limit.

[Mayberry Machiavelli]

24. "What is 'The State of California'?" I love Jeopardy!

http://www.latimes.com/business/la-fi-tax12oct12,0,5995816.story?coll=la-home-headlines

Panel Supports Cut in Mortgage Deduction
The amount of a home loan qualifying for a federal tax break could be reduced considerably.
By Joel Havemann
Times Staff Writer

October 12, 2005

WASHINGTON — President Bush's tax reform commission tentatively agreed Tuesday to recommend a substantial reduction in the limit on mortgage interest that homeowners can deduct from their taxes.

If a uniform nationwide cap was chosen to replace the current $1-million limit on mortgage debt eligible for deduction, it could be widely felt in California, which has some of the nation's highest home prices.

...


At a time when the National Assn. of Realtors estimates the median home price at $268,000, the $1-million maximum on mortgages whose entire interest costs are deductible affects relatively few home buyers nationwide. The story is different in California, where the median is $569,000, according to the California Assn. of Realtors.

A lower limit "would be devastating to the homeowners of California," said Vince Malta, president-elect of the California Realtors trade group.
...

[ProdigalJunkMail]

25. well, there ARE a few other areas

where this has happened as well.

JEOPARDY : TOPIC : HOUSING BUBBBLE

In this region of the country housing prices for an 1100 sq ft house have risen 300% in the last five years. Good thing organges are still cheap...

subjectProdigal

[Mayberry Machiavelli]

26. I know there's other areas--like every major coastal city. You had said

that you didn't know too many middle class people who had or could afford over 350K mortgage debt. I'd say most people who've bought a house in CA the last few years would fall in this category. Or anywhere near Boston, DC, NY, NJ...

Granted it's largely funky loan procedures that have led to this.

[ProdigalJunkMail]

27. true true...funky loans are right

in the past, qualifying for a $350,000 loan would have required 20% down (minimum) and an income of about $150,000...today you can get the loan with 0% down and even pull some money out at closing if your house value climbs during your lock period. You can finance for 50 years and who cares about income to debt ratios???

subjectProdigal

[Fescue4u]

22. Form an LLC, sell your house to it.

Then the LLC pays the mortgage and you pay rent to the LLC.

The losses from depreciation and mortgage interest that are incurred by LLC then flow to your return.

Downside? You pay capital gains on the house when you sell it.

(although this solution will work nicely if you plan to live out your remaining days in the home, you then will the LLC to your heirs who escape may escape inheritance taxes depending on the laws and limits at that time)