I was rather surprised to see this AP article on the release of tax change recommendations by the Joint Committee on Taxation. I was even more surprised to see it dated January 27th, and to have heard nothing of it previously. Have I been living in a Koufax-induced bubble? However, when I sent out the googling monkeys, even they only retrieved a scant few media hits.
So why was I shocked at so little attention? Well, other than the committee recommends to radically alter/revoke a number of deductions on employer-based benefits, particularly on health- and child-care costs, there was a much larger bombshell: The elimination of the personal deduction for home-equity loans.
According to this pdf of the plan, the incentive for the change is that the deductions for home equity loans are 1) a disincentive to save, and 2) unfair to non-homeowners who incur personal debt but cannot deduct it due to the revocation of the personal debt deduction.
I'm not arguing that either of those justifications are not valid; however, millions of Americans have used the equity in their homes for various reasons, from putting their children into college to paying down high-interest credit card debt. In fact, I've argued in the past that the Bush Recession wasn't a hell of a lot worse due to the refinancing boom which kept consumers in the stores rather than on the sidelines, particularly with shrinking paychecks and higher out-of-pocket healthcare costs. Taking that money out of the economy could have serious repercussions.
During the campaign season, the Bush Administration floated the idea of abolishing the entire mortgage deduction. I tend to see this as the real testing of the waters. If Americans are so numb they won't fight these changes, then much more painful ones, particularly for working, home-owning families, are on the way.
Posted by MB Williams at February 1, 2005 01:57 PM | TrackBackThe bigger threat is the elimination of the deducation for state and local taxes. It's unlikely Congress would ever trash the mortgage deducation, but the president would love to punish blue states by gutting the deductions for property and income taxes.
Look at Maine, which has relatively high state and local taxes. The change could mean a tax hike of up to $1,100 for the average Mainer.
Sure, the rates might go down across the board, but high-tax states will be subsidizing those places that refuse to invest in things like education and health care for low-income residents.
Posted by: David at February 1, 2005 04:21 PMI agree with you, David, that the state income tax deduction is also a big deal - in fact, I blogged about it here on November 19, 2004. But I think for that group we Democrats seem to do so poorly with, middle-class families, this IS a big deal.
Posted by: MB at February 1, 2005 06:06 PMI'm not suggesting the mortgage deducation isn't a big deal. To the contrary, I think it's such a big deal it will be nearly impossible to touch.
In addition to the middle class, the mortgage deducation make the starter castles in Cape Elizabeth and the second homes on the lake more of a bargain for the better off.
Plus, the financial services sector -- banks, mortgage brokers, Wall Street -- like the mortgage deduction because it encourages people to overspend on their houses.
Meanwhile, President Bush's support comes from those states likely to have little or no state income tax. A change just this year lets people living in states without an income tax deduct what they pay in sales taxes. That's a payoff to Florida and Texas.
By the way, I like your blog. Thanks for doing it.
Posted by: David at February 2, 2005 04:40 PMSee, that's why I think they're floating revoking the home-equity deduction, to see if we're actually paying attention. Plus, I think big donors like MBNA don't like people paying off that high interest debt with their home equity and cutting into their profits.
Thanks for the compliment. Your paper ain't so bad either. Hope you'll be kind to me if I decide to run again after we relocate up your way (well, Farmington.) ;-)
Posted by: MB at February 2, 2005 05:28 PM