Mortgage deduction

6Mar06:

I read an article today that stated that 30% of USA income tax filers do not take the mortgage deduction, and half of the home owners don’t take it. I would suppose that those are lower income home owners that use the “standard” rather than the “itemized” deduction method.

The deduction itself is regressive. It grants fewer deductions, (both by amounts and by proportion of income) to poorer tax payers. I don’t know if it proportionally grants more or less deductions to wealthier rather than middle income earners.

The President’s (Bush’s) committee for tax simplification concluded that it’s not feasible to significantly and revenue neutrally reduce our income tax rates without eliminating the mortgage deduction.

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Respectfully, Supposn

The harm of progressive, (bracketed) taxes

I’m not opposed to bracketing, (for progressive taxation) due to principle, but because it induces increasing complexity and unanticipated inequities. Each real or perceived inequity induces lobbying for their client’s compensating exception. Each instance to “fix” a specific inequity, generally results in the creation of new inequities. That’s a significant cause of our tax complexity and inequities.

Lower income taxpayers are not large contributors of political funds. Congress is not amiable to the pleas from non-contributors not organized into strong voting blocks. If we could, a flat tax rate for all types of income tax is preferable.

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Respectfully, Supposn

How can we flatten income taxes?

Congress voted for progressive bracketed tax rates for political expediency and some appreciation of a pure flat rate’s effect upon lower income earners. They considered the potential economic harm, (greater government welfare) costs to our nation. Often great harm is done with the best of intentions.

It’s mathematically possible and revenue neutral to flatten income taxes by increasing lower bracket rates. For the reasons they were bracketed to begin with, that’s a political “no starter”.

We could create another tax to replace lost income tax revenue and retain revenue neutrality. Consumption taxes such as VAT, (value added tax) have been suggested. If a consumption tax is used, there should be some provision to compensate for VAT’s greater proportional burden upon low income tax payers.

We could increase tax deduction per dependent, index all finite dollar amounts of our tax laws and regulations, and reduce the income tax rates as we initialize or increase the VAT. The process would best be accomplished in a gradual manner. IMO the process would have to be halted when VAT approaches an unacceptable rate.

The evaluation of a tax policy’s fairness is subjective. IMO regardless of motive for adopting a consumer tax, (to simply repeal tax bracketing or to tax spending rather than earning), this proposal’s fair and feasible.

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Respectfully, Supposn