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

Taxing dividends

It was claimed corporate earnings wa taxed on the corporate level, and then again taxed when received as dividend income. Actually only retained earnings were (and still continue to be) taxed as corporate income. Dividends paid by corporation, (distributed income) was and continues to be exempt from corporate income tax.

I do not know which is sader. Members of congress that unkowingly accepted the contention that corporate income was taxed twice, or the members that knew better but did not confront the lie.

If cor[porations wish to shelter retained earnings from corporate income tax, there are methods to do so. For example corporations could Congre

Congress granted deep tax discounts to individual taxpayer"s s dividend income. Preferential tax treatment of a particular source of income increases the burden of taxes and debts paid by other taxpayers and our generations that follow.

This discounted tax rate of dividend income only applies to persons that receive such income, (the stock holders on record). The majority of middle income investment participants are not the stock holders on record of their stocks. The great majority of their investments are in tax deferred retirement funds. They receive little or no benefit from this tax dicount for dividend income.

Rather than drafting a law that would benefit all stock holders, we were able to grant a much greater tax rate deduction for the wealthiest tax payers, a lesser rate deduction for the less wealthy tax payers, and managed to provide the middle income earners with little or no tax rate deduction. This devious inequity is simply ingenious. We’ve managed to reduce our government’s revenue from dividend income but limit tax relief to the wealthier investors.

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Respectfully, Supposn

income taxes

IMO any finite amount that’s mentioned in any tax regulations and laws should be indexed. Due to the inflation of the dollar over the years, specific un-indexed amounts result (over the years) in greater tax amounts and rates being paid by lower income earners. This is particularly important in regard to deductions per dependent and the amount ranges of tax brackets. They also affect the application of the alternate minimum tax.

I’m not opposed to bracketing, (progressive) taxes out of principle, but because it induces increasing complexity and unanticipated inequities. Each real or perceived inequity induces another tax exception or additional loop hole. That’s a significant cause of our tax complexity and inequities. If we could, a flat tax rate for all types of income tax is preferable.

Each instance to “fix” a specific inequity, generally results in the creation of new inequities. Tax regulations should be drafted with a “broad brush”. Minute micro-fixes don’t work. When congress heeds the lobbyist’s pleas to alleviate their client’s tax burden that they perceive as excessive, the “fix” is an inequity upon another lobbyist’s client. Lower income taxpayers are not large contributors of political funds. Congress is not amiable to the pleas of non-contributors that are not organized into strong voting blocks.

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Income taxes Vs. consumption taxes

Income taxes are THE most complex taxes. We’re often told that they’re cheaper to collect. Their revenue/expense ratio may be superior. No one actually knows how much income taxes are evaded or what are the total collection AND compliance expenses. The taxpayer’s compliance expenses, (i.e. administration, time, and stress) may or may not be greater than the government’s collection expenses. IMO we utilize income taxes for the same reason that Willie Sutton robbed banks, "that's where the money is". Income taxes produce the greatest revenue. Dependent upon your political philosophy, that may or may not be an advantage.

Consumer taxes are very much simpler. Their collection and compliance expenses are not particularly expensive. I prefer the value added tax, (VAT) rather than the sales tax. VAT almost immediately refunds any businesses taxes for consumed goods or services. The enterprise deducts any taxes paid from their taxes collected and sends the difference to the government. Both the government’s and taxpayer’s expenses are less (than sales tax). Compared to almost all other tax methods, the simple paper trail is more conducive to compliance rather than evasion.

If we were to replace income tax revenues with a consumer tax, it would be prudent to do so gradually. It would also require some provision to protect low income earners. IMO we’d gradually approach an unacceptable consumption tax rate, at which point the conversion would halt. I wish it were otherwise.

If we can only lower, but not be rid of income taxes, we should make them simpler.

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Corporate taxes serve a purpose

I’ve often read of all corporate income taxes being eventually paid by the consumer. The writer then advocates doing away with corporate income taxes.

I wish to suggest that it makes more sense that there should be a simpler flat tax for all income, corporate, partnership, or individual. If we do away with corporate income taxes, entrepreneurs would simply arrange their income to be derived through corporations. If we repeal corporate taxes, the revenue would have to be replaced by raising the rates of other taxe(s), or creating new taxes. Corporate taxes are an additional paper trail for the enforcement of personal taxes. It would be desirable to have similar tax rates and accounting concepts for both personal and corporate taxes.

I also wish to comment regarding consumption taxes such as sales or “value added taxes”. The advocates of VAT always propose it as a means to replace income taxes.

I think all nations that have VAT or sales tax, also have income taxes. That’s because if they did away with their income taxes, they would have to raise their consumption tax rate to more unreasonable levels. For example Great Britain’s rate for most goods and services is 17% and their income tax rates are greater than ours.

We can not "wish" government expenses to vanish. If we must obtain a given amount of revenue, it's prudent to spread it among different types of taxes and not to permit any type of income tax rate to approach 1/2. Many believe that well before we approach the 1/3 rate, w're creating a very wasteful expense account environment and much greater tax evasion.

Beware of what you ask for, your wishes may be granted. The USA may eventually have VAT and both individual and corporate income taxes.

Respectfully, Supposn