Tax Reform Panel Aims to Destroy the Economy
I see Joshua already gave the link to Nealz Nuze, and more information can be found at this MarketWatch article. The panel wants to remove the Alternative Minimum Tax (AMT), not because they want tax simplification, but because they want to avoid a revolt.
I have a lot of work to do, and probably shouldn’t take time to post right now, but this has me so angry I’m about to explode. The recommendations of the tax reform panel will destroy our economy, and here’s why:
First: The commission is going to recommend that the cap on the home mortgage interest deduction be reduced. Currently you can deduct interest on home loans up to one million dollars. The new limit is likely to be $350,000. This means that all interest on home loans about $350,000 will not be deductible. The result? A tax increase for people who own more than $350,000 on their homes. Now this won’t bother most Americans because they believe that anyone who owns a home valuable enough to stand as security for a loan in excess of $350,000 is rich, and as we all know there really should be no limit to the taxes that evil rich people pay. Political survival rule No. 1: You can never go wrong raising taxes on the rich.
I used to live in California. If this goes through, you can watch as the California real estate market quickly dies. The same thing will occur in New York, Washington, Massachussetts, and even here in Atlanta. Where I lived in California (Irvine), if my wife and I had wanted to buy a 1000 sq ft condo, it would have cost us $300,000, and been a higher debt-to-income ratio than a lender would allow nearly anywhere else. Other people I know were looking at first homes in the $600,000 range, and would be seriously stretching themselves to be able to afford the $540,000 loan they would have carried.
All of a sudden, that market will crash. California real estate values are currently known as being inflated, but if you want to watch a bubble burst in an instant, this will do it. The same will be seen in every large city in the country, because $350,000 is not a lot for a house in most places these days.
Furthermore, you’ll see the entire home industry take a major slide. Where I live in the Atlanta suburbs, all the new developments have starting home prices in the $400′s or above. All of a sudden you’ll see tiny houses being put onto these lots, as the cost won’t justify putting large homes.
People factor the home mortgage interest deduction into their plans to buy a home. Take that away, and you’ll suddenly see a large number of homeowners getting slammed with huge tax bills they may not be able to afford, and unable to sell their houses because the market has crashed in response to the new tax laws.
Second: Another tax increase. Right now your employer can deduct the cost of any health insurance it pays for on your behalf. The tax reform commission wants to limit that deduction. Does this amount to a tax increase on businesses? In a sense, yes. But, as you know, business don’t pay taxes, they pass the taxes and the tax increases down the line of commerce until they end up embedded in the final retail price of goods and services. So this is a tax increase, but it’s an increase on all of us.
If there’s a clearer recipe for forcing the public to accept socialized medicine, I don’t know what it is. Businesses are tax-incentivized to provide health insurance to their employees. Take away that incentive, and you’ll see the ranks of the uninsured swell quickly.
It will result in an immediate call to socialize medicine, which will then cause huge problems with the federal budget, only adding to our tax burden.
When President Bush formed this tax panel 9 months ago, he asked that it “advise on options to reform the tax code to make it simpler, fairer, and more pro-growth to benefit all Americans.”
This does absolutely nothing to make it simpler. Removing the AMT does nothing to make it fairer, it just makes it less likely to result in us tossing our elected officials out of office. And destroying the entire real estate economy and raising taxes on businesses is not pro-growth. He also specifically requested that they keep the home mortgage interest deduction and the deduction for charitable contributions, and they’ve eviscerated the former.
I’d like to advise President Bush. It’s time to stand up and publicly announce that this tax reform panel has FAILED. This tax reform panel is advising that we engage in about the worst possible set of actions that we could find. It is unacceptable, and Bush needs to say so.
Sorry, but as a low-wage worker with none of these endangered tax breaks, it’s hard for me to feel too sorry if the gravy train is cut back. I run the numbers and if you think the middle class is overtaxed, they bear lower effective tax rates than many working class Americans who are not able to cash in on the tax breaks. I do have a gripe with AMT on grounds of equity (and also with the subtle ripoff of higher incomes due to phaseout and elimination of deductions), but equity also requires that lower incomes are not taxed at higher rates than middle class incomes due to inability to exploit tax breaks.
As a low wage worker, you should be concerned that a systemic housing market crash might spark a country-wide recession or depression. I’m not sure if you’re current receiving health insurance from your employer, but I think you’d be concerned that it might suddenly go away once it came out of taxed dollars.
You may not agree that a rising tide lifts all boats, but wouldn’t you agree that a lowering tide puts your butt out of a job?
Actually, I have been pretty much immune to both booms and recessions. I did not become worse off during the Carter or Bush Sr recessions, and did not become better off during the booms of the ’80s or ’90s. (If anything, I became worse off during the second half of the ’80s, as my income was stagnant while my rent went up five years in a row, I had to move three times, I defaulted on my student loans after the fourth rent increase, and the fifth rent increase left me homeless for four months.) As one who has been long employed at or near minimum wage, I’m not too worried about becoming unemployed, and that’s just about the only way I could become financially worse off than I already am. On the other hand, rent increases follow job growth, so I am very worried.
Terry,
I must say that you’re a bit of a conundrum. You speak well, appear to think clearly, and mentioned student loans, so I assume that you definitely have a high school diploma, and at least some college? I’m not sure exactly what it is you’ve chosen as an occupation, but I really think you have better options, if you so choose. I know people that have made more than $15k/year as a receptionist, and who have used that as a stepping stone to higher pay within a company, so the entry barrier can’t be too bad.
But even if that is so, I think you’re certainly not the typical case. Most people in this country don’t remain on the bottom rung of the employment ladder their entire lives, unless they choose to do so (either voluntarily, or due to getting into drug/alcohol addictions, crime, or other problems).
It almost sounds as if you’re against economic growth and improved employment in this country because it will increase your rent. I used the old adage of a “rising tide lifting all boats” before, and even if you don’t think that is the case for you, I don’t think it’s very fair for you to try to drain the ocean to punish the rest of us.
For the very largest segments of our population, the FairTax will be a better solution than what we’ve currently got. Even for the vast majority of the poor, who will see their tax burden become lower than it currently is, due to the removal of payroll taxes and addition of the prebate. And while you may spit on economic growth, the fact that so many of the “poor” in our country are living better than many “average” Europeans is entirely due to the economic growth that American pro-business fiscal policies has brought to us. This is a hell of a country to be “poor”. To think that you won’t see any improvement in your standard-of-living with the incredible growth that will come after the FairTax is just silly.
At the very least, I think when you run the numbers, even with the rent issue, the FairTax will effectively be progressive due to the Prebate, and you will pay little or no taxes. Depending how close you are to the poverty line, you will see roughly a 23% raise, not including the raise you will see as a result of withholding. Unless you’re currently spending more than your yearly income on rent, the FairTax being added to rent will not in any way affect that. And if greater competition actually brings rents down, you’ll be better off.
But it sounds to me like you’re not interested in looking at this fairly. You have a preconceived notion that this plan will destroy your situation, and have no plans to even attempt to change that situation, despite an ability to write, and to express your thoughts clearly and intelligently. If that’s the case, so be it. But at least acknowledge that you’re standing in the way of a plan that will help 95% of the people in this country, instead of the current system that punishes us all.
I have a useless liberal arts (pre-law) degree and nothing in the way of career-related experience, so employers generally aren’t interested in hiring me. Without career-related experience, my resume is essentially worthless and hasn’t gotten me an interview in the last 15 years. With my student loans in default (I’m paying $70/mo but the loans are still in default, and I cannot consolidate to take advantage of current low interest rates, so the principal is being reduced so slowly that at the current rate, I will be dead before the loans are paid off). So going back to school for marketable skills isn’t even an option. I work in a convenience store with two other college graduates earning minimum wage, there are no internal advancement opportunities expected anytime soon, and my bad credit prevents a lateral move which could afford advancement opportunities. I dug my hole and I guess I’m stuck in it.
There are a lot more options than you realize. Most of the people that my wife works with (in the mortgage industry) are sans-degree. They’re all just high school graduates, and many of them have moved far beyond $15K/year a long time ago. Having a degree puts you a leg up on them.
In many industries (such as the mortgage industry), you don’t need any “marketable skills” to get in on the entry level. I think consigning yourself to a defeatist attitude and assuming your future is completely shot is just plain wrong.
Tell me more about this, I think it would be pretty cool to work in the mortgage industry. As you know, the industry has been booming in recent years, especially in the refi sector (there are several lenders and brokers who have been advertising extensively here and they all focus on refi – almost all of them never mention acquisition lending. But when they recruit LOs, they advertise for people with LO experience. So how do you get a foot in the door? To what extent will my bad credit be an obstacle? (There’s a finance company hiring but they are adamant about good credit – so I guess their customers aren’t good enough to work for them!)
Basically, she works for a brokerage house, not a direct lender. At her job back in CA, she was in the “Broker Approval” department. Basically, she made sure that the brokers all had their paperwork in order, that they had all the certifications/etc they were supposed to have, etc. This was in Southern California, where salaries are higher than other places, but the typical salary there was $25K or higher. Now, she works as an assistant to an account executive here in GA, the account executive essentially being a salesman. Salary is typically $30K or above for that position. She has a degree (useless liberal arts degree), but her job has absolutely nothing to do with the degree.
I don’t know how major the credit issue is, but it’s not quite like being a loan officer, so I don’t think it’s quite as crucial. And even if it takes 4-5 different interviews to find a company willing to “take a chance”, that’s the first step to turning the credit score around.