If we really wanted things to be fair why not take away itemized deductions period.

[dkf]

Just give everyone the standard deduction. That seems "fair".

[sharp_stick]

1. Why even the standard deduction?

It's kind of pointless to give any deductions if you don't offer an option. Of course in this case you'd have to reformat the percentages among all wage earners.

[hfojvt]

36. the standard deduction is progressive

with the standard deduction and the personal exemption that means the first $25,000 of income for a family of four is not taxable.

But itemized deductions give richer people about $400,000 in tax free income.

The basic facts are that only 23% of taxpayers making less than $60,000 itemize their deductions for an average amount of $19,000.

Whereas over 95% of those making over $1,000,000 itemize their deductions saving them an average of $141,000 a year or $45 billion in lost revenue with another $105 billion in tax breaks going to people with income over $100,000.

http://journals.democraticunderground.com/hfojvt/151

Itemized deductions also add greatly to the complexity of doing taxes.

[WCGreen]

2. since the highest amount on most peoples Itemized deduction is

the interest they pay on their home...

It was put there in order to encourage people to purchase homes.

Just making a point, no judgment.

[dkf]

5. Why is that "fair"?

[WCGreen]

47. My comment was to add information to the debate and not to pass

judgment.

I never mentioned "fair" in my comment.

On edit, looking back I can see why fair was assumed, I apologize for my snark.

In the original comment I was proving information and not judgment.

[Gormy Cuss]

63. Is that true in general or just of people with high LTV ratios?

Over time the real estate tax amount surpasses the interest deduction, doesn't it? It would happen sooner in areas with relatively high taxes and in times like now when mortgage rates are so low.

[dmallind]

3. massively regressive

most deductions are phased out or capped at higher levels, and even where they are not, those with moderate incomes spend, and get to deduct, far more of their income than the very rich on deductible items such as mortgages and medical bills.

[dkf]

7. IMF Calls Mortgage Interest Deduction ‘Regressive

The U.S. should consider capping or cutting the popular tax deduction for mortgage interest as it prepares to debate what should replace mortgage giants Fannie Mae and Freddie Mac, the International Monetary Fund said Wednesday.

The IMF, in an analysis of housing finance systems around the world, said an Obama administration paper released earlier this year makes progress toward needed changes in the U.S. mortgage system. But the report criticized the U.S. for not tackling the popular tax deduction for mortgage interest, which the report termed “expensive and regressive.”

The U.S. government’s support of the housing market “has been pervasive but has not yielded many of the expected benefits to prospective or existing homeowners,” the report said. “It is clear that an overhaul is needed.”


http://blogs.wsj.com/developments/2011/04/06/imf-calls-mortgage-interest-deduction-regressive/

[Xithras]

21. The IMF works hard to relegate the peasants of the world to serfdom too.

Who cares what they think?

[WinkyDink]

61. Yes, let's pay attention to Dominique!

[hfojvt]

26. no it is not massively regressive

http://journals.democraticunderground.com/hfojvt/151

To quote myself

"The next group are those with AGI between $40,000 and $60,000. They make up 17% of all taxpayers and only 41.5% of them itemize their deductions, and they get 11.2% of the total. Those two groups together (those making between $10,000 and $60,000) are 65% of all adult taxpayers, only 22.8% itemize their deductions, and they only get 22% of the total."

"So people making less than $60,000 would mostly be breaking even (under my proposal which includes an increase in the standard deduction and a refundable tax credit). Then there's the other side. 321,294 filers make over $1,000,000, and almost 97% of them itemize their deductions. They are .28% of all adult taxpayers, but they get almost 11% of the total deductions. Since they pay at the highest rates, their deductions are also worth more. They get $141.6 billion in deductions whereas their standard deductions would be no more than $4 billion. Their itemized deductions are thus worth about $45 billion or about $141,000 per household.

The next richest group also does very well with itemized deductions. Those with incomes between $100,000 and $1,000,000. There are only 17.9 million of them which is only 15.4% of adult taxpayers, but they get 44.4% of the benefits as 88% of them itemize. They get $579 billion in itemized deductions versus the $204 billion they'd get from standard deductions. (and the $240 billion they'd get from the proposed higher deduction). That's about $118 billion a year in tax breaks going to a group that is in the top 20%.

Schedule A, itemized deductions, is a set of loopholes that mostly benefit those who are already better off. It's not worth it to give a mere $13.6 billion in tax cuts to the bottom 65% while giving $150 billion to those in the top 20%."

[CTyankee]

4. I think there would be a real problem with taking away the mortgage interest deduction.

Except perhaps on second houses. Also on charitable deductions. If the mortgage interest deduction were to be taken away, it would cause untold grief in the housing market. And charitable deductions are a way of keeping charities in the business of taking care of people when the government won't or can't.

Personally, I can live w/o either one of those. My house is no longer my nest egg, and I'm too old to care now. And I'd prefer having a government that took care of people through a fairer taxation system. But I don't see changes that I would like happening any time soon, if ever in this country...

[Gidney N Cloyd]

6. Deductions & tax credits are about social engineering and encouraging desired behavior.

It's a reward system for good behavior.

[dkf]

8. But is it "fair"?

And isn't that the reason pretty much all exemptions/loopholes exist?

[RUMMYisFROSTED]

13. No, but the real question is "Is it just?"

And No, again.

Some loopholes are social engineering and some loopholes are political payback.

[lumberjack_jeff]

23. No. "Fair" has nothing to do with it.

The code is written with three principles in mind:
1) How much money does the government need? And,
2) what kind of activities should we encourage and reward with the tax code? And finally
3) what gets me re-elected?

[aikoaiko]

27. best post in thread.

[SmileyRose]

9. or at least Government approved behavior.

whether carrying a mortgage or not is good behavior is open for debate at this particular moment - but it is government approved.

[ProgressiveProfessor]

16. It is also very questionable as an effective tool

[lumberjack_jeff]

28. On the contrary, it's a great tool

Don't confuse the tool with the value of the task to which it's being put.

In the past, home ownership was encouraged as a path to prosperity. Home ownership was about 45% in the 40's and it's about 65% today. The tax code created this behavior very effectively, but the downside is huge and untenable personal debt.

[Shagbark Hickory]

10. With business deductions, I'm able to invest in equipment...

that I wouldn't otherwise buy.
Less tax that I have to pay but someone will end up paying tax. The company that sold the equipment for example.

[dkf]

15. Well then it goes to whether you want to encourage a certain outcome or if you want to be fair.

[hfojvt]

31. business deductions are not the same as itemized deductions

one is Schedule A and the other is Schedule C. Surely you must know that if you really take these deductions.

[Shagbark Hickory]

40. I haven't got a clue. A CPA does all that. I just write the checks.

My point of replying is not to argue what is fair or isn't fair.

[hfojvt]

45. dammit man!

I set you up to say "and don't call me Shirley" and you wiffed on it.

When somebody sets you the straight line, you are supposed to spike the punch line. :argh:

Since I did my own taxes, sometimes with mistakes (in the IRS' favor, I had to do two 1040-X's to get some refunds that I missed by not having all of the forms) I can say that most of the businesses expense deductions are not the same as itemized deductions.

I might also note that both Joe the Plumber and the $400,000 Congressman seem to be confusing the issue and acting like they will pay higher taxes on their gross income when taxes are really only paid on net income. Having $1 million of gross income does not make you a millionaire if you have $980,000 of expenses.

[Shagbark Hickory]

49. I'm a fuckup.

What can I say? :shrug:
I can't even waste time properly.

[Uben]

11. Just tax capital gains fairly. nt

nt

[dkf]

20. Because government doesn't want to encourage investing?

[The Magistrate]

48. So wages For Work Should Be Taxed Higher than the Proceeds Of Owning Shares, Ma'am?

Since you seem to be on a quest for 'fairness' now....

"One hundred percent of income and capital, plus a bullet through the head --- that's the old Soviet Union."

[W_HAMILTON]

52. Yeah, that makes no sense.

I never understood why we would want to reward the E*Trade baby over someone that actually busts their ass every week working at their job.

[The Magistrate]

56. Because The Fact Is, Sir, Our Culture Despises Labor And the Laborer, And Worships The Sharpster

This is not what appears in the homilies and texts of our civic religion, mind, but it is the cold truth....

"Work is of two kinds: first, altering the position of matter at or near the earth's surface relatively to other such matter; second, telling other people to do so. The first kind is unpleasant and ill paid; the second is pleasant and highly paid."

[MadHound]

12. And kill middle class homeowners,

Not a smart move sparky.

[dkf]

18. Well I would like to buy a house

And if housing prices fell it would be easier to get a downpayment.

Artificially keeping housing prices up keeps people priced out of the market.

[Johonny]

30. I agree

I'm in the same boat. But you still have to do something about people who already bought homes under the assumption that they would have the tax credit. Another round of massive foreclosures isn't exactly what the economy needs right now.

[Chan790]

42. No...

this is one of our fundamental problems, that we consistently insist that nobody take the hit for their poor or problematic behavior. Reliance on the tax credit to break even on home-ownership costs and reliance on zero-down mortgages drove both the bubble and the lack of available equity now. Lots of homeowners who can't pay for houses they don't even fractionally own and owe more than they'll ever be able to afford on junk real-estate that won't ever see a return on investment.

Scalp em and when they foreclose, make the banks eat the differences on the short sales. Everybody who screwed the pooch pays and the taxpayer is off the hook. Personal responsibility sucks.

[MadHound]

37. So you're willing to kill the middle class so you can buy a house?

Wow, that's real compassionate of you.

And if you haven't noticed, both housing prices and interest rates are at serious lows right now.

Tell me, how does the mortgage deduction keep housing prices artificially high.

[fascisthunter]

57. good catch!

...

[Warren Stupidity]

62. somebody from harvard said so , it must be true

nevermind that we've had that deduction in place for almost 100 years, or that we are in a giant real estate deflation, or that the last housing bubble was a scam run from wall street, the problem is this particular middle class tax cut.

[ProgressiveProfessor]

14. A lot of small businesses report on personal tax returns

and for them itemization is required to be fair.

[Tesha]

25. Nonsense -- That's what Schedule C ("Profit or Loss from Business") is for.

Itemized deductions have nothing to do with that.

Tesha

[ProgressiveProfessor]

53. Schedule C is a form of itemization to most people

[Tesha]

54. No, Schedule A is "Itemized Deductions". Schedule C is Schedule C. (NT)

[taught_me_patience]

17. Mortgage interest deduction is regressive

but most DUer's are for it because it benefits them. DUers seem to be against regressive taxes when it hits their pocket books, such as sales taxes and gas taxes.

[Cosmocat]

43. No

We are 10 years into a 15 year mortgage, we already have paid our interest and now are almost completely paying on the actual loan.

I think this is horrible idea. The deduction was HUGE in the early years, because we had less income and it helped us to get past that tough period. Now, we are a little more stable, and we don't see the deduction and don't need it as much.

I think the same effect occurs for MOST people who use the deduction.

Yeah, there are some people in 800,000 houses, some people with multiple houses.

MOST people have a lower/middle income existence and it works for them like it worked for us.

Same with the child deductions.

This is where the lunatic right has a laser like focus when they babble about tax reform - that alone should tell you it is a bad idea.

[taught_me_patience]

50. And renters, who are typically younger and less wealthy get almost no benefit n/t

[Cosmocat]

58. Not the point ...

You probably are going to want to spin this into some screed against renters, and it isn't - I was a renter, and again, I now reap next to no benefits from the exception.

My wife and I went from paying $400 a month for a nice two floor, two bedroom apartment to paying $1,400 a month in mortgage and property taxes, in addition to the other tertiary costs of home owning.

The exception is something that helps you to make that initial jump to home owning.

Again, your position is aligned with the republican position - might want to give some pause and reconsideration.

[Xithras]

19. Because the point is to tax income, not cashflow.

If I bring in $50,000, but have to spend $10,000 out of pocket to do it, then my actual income is $40,000. That $10,000 was an expense, not income. To put it another way...if I offer you $5,000 to do a job, but you have to buy a $1,000 piece of equipment out of your own pocket to do it, have you "earned" $5,000 or $4,000?

If you tax me at that $50,000 level when I had $10,000 in expenses, you're taxing me for more money than I actually earned. THAT is unfair. You're effectively offering a tax discount to people who work for others, and are penalizing small business owners, self-employed people, and entrepreneurs who have to pay their own way and have to cover their own costs.

[dkf]

24. Then I should be able to deduct transportation, clothing, and all the other things

That enable me to earn an income.

And I bet this is what the oil companies say about their deductions.

[Xithras]

38. But you can.

Your personal deduction is intended to subsidize the costs of food, clothing, and shelter for the very same reasons. As for transportation, those expenses ARE deductible on an itemized return, if those expenses were incurred as part of your own employment. The only thing you can't deduct (and neither can small business owners) is the cost of driving from your home to office and back every day.

And yes, oil companies do say the same thing, for the same legitimate reason. If an oil company spends $50 million to make $100 million, their income is $50 million.

If I owned a company that did $500 million in sales, but it cost me $495 million every year in operating expenses to run it, my income would be $5 million, and I would pay taxes on that $5 million...not $500 million. If you charged taxes on $500 million, the tax debt would actually exceed the companies entire profit margin and it would go broke.

As Obama said, "This is not class warfare. It's math."

Income = revenue minus expenses.

[sinkingfeeling]

22. As soon as all 'business' deductions are eliminated, you can start on the working population's

deductions.

[Possumpoint]

33. Apples and Oranges

only by subtracting a business's operating expenses can you determine its profit. Your income is taxed and the business's profit is taxed.

[Possumpoint]

35. All Of My Working Life

I've believed that flat tax is the only fair way to tax if a tax is required. You, as a citizen, have a duty to support the government. Your income should be taxed on an equal basis with everyone else to achieve that support. Deductions are artificial stymulis added to the tax code to win votes and stimulate various segments of commerce.

[sinkingfeeling]

39. If corporations can write-off their expenses (cost of doing business), then individuals should be

able to write off some of theirs (cost of living).

[mmonk]

29. Because it would hurt the working poor more than the rich.

[Freddie Stubbs]

32. The thing is, we don't want things to be fair

We want 'our' tax deductions. Other people are just 'special interests.'

[Johonny]

34. how do you balance out cost of living per state then

some states have really high taxes. Some states apparently want no state funding. I'm not saying how we balance out tax load is completely fair now, (some states mainly tax property and sales tax and thus right off all their taxes, while other states mainly tax income and sales tax and thus can right off all their state tax load) but I think getting rid of the state tax reduction would massively hurt liberal states from providing services the federal government can not (isn't willing) do. I could very well turn more tax liberal states into teaparty people.

Also you will seriously cut down charitably giving.

You could argue we need a progressive deduction system which phases out at higher income levels, but in theory we have that now with the alternative minimum tax.

[hedgehog]

41. I was going to comment on that myself. I suppose people in

low tax states could complain that the deduction means that they have to take up the slack while we in high tax states keep our money near home. OTOH, I think in general high tax states pay more in federal taxes than they get back, and low tax states receive more than they pay in.

[PurityOfEssence]

44. Because all animals are not equal, Snowball

The Reagan Era taught--or should have taught--one great lesson: how easy it is to get the have-nots and the have-pretty-much-nothings to go at each other's throats.

In the Reagan era, being replayed today, it's mobilizing the working class against affirmative action and unions. Now it's an all-in onslaught against anyone of the working- or middle-class who has anything.

Some people have massive medical expenses, and to not allow them to write off those costs would destroy them, whereas to let them do so keeps them in the workforce. We're lucky: we have good health coverage, but an unexpected child and some personal health issues with expensive surgery have been costly even with good coverage, and shouldering such burdens would have been trouble.

Here's why I'm a Liberal: because the cost of human failure it too great for us all. It's all very funny and snotty for asshole reactionaries to say that "if you can't keep it together, you should fail", but what is the cost to the rest of us for personal failure? The cost is derelicts who contribute nothing to the economy, and a drain caused by them to their family and friends.

In a sickening way, the working poor are suckered into the same mindset: "why should you guys have any benefit when we don't?"

Home ownership and the attendant tax break has been one of the very few breaks for the little guy. So very, very many of us have premised our economic existence on this and this has helped society. We pay property taxes that sustain services.

Here's the big issue: radical change disrupts the system. Taking away itemized deductions immediately would cause widespread hardship, and not to the "haves", to the rest of us.

Some of us who are working professionals worked hard and long to scrimp together the 20% down for a mortgage one needed 20 years ago, and have been solid citizens with the understanding that this would continue. The home mortgage deduction was deemed pretty much sacred, and many of us structured our lives around this premise. It brought stability, something that EVERYONE needs in society. It came with great responsibility to pay taxes to sustain us all. To sweep it aside perfunctorily would plummet many decent wage-earners into major jeopardy and help further crash the housing market. At the very least, they would sharply curtail personal spending to protect their domicile, which would be another body-blow to our economy.

This doesn't help individuals, it helps the wealthy: as the house prices fall, they can snap them up and become landlords for a much smaller outlay. With little option to own, they can then jack up rental prices as they please.

I've got news for the angry members of this board who are renting and have little personal wealth: if you fuck what's left of the middle class, you will only destroy yourself. Let me repeat that: if you fuck what's left of the middle class out of jealousy and some kind of righteous indignation, you will only hurt yourself more.

Imagine a nation of renters. Imagine the disruption. One of the great advantages of home ownership is that you have some stability and predictability, both of which, as stated before, are necessary for a prosperous society. If everyone's at risk of being thrown out of a domicile due to the sale of the property or raising of rents, then disruption abounds. People don't show up for work on occasion. People leave town abruptly to go live with relatives. Chaos is the result, as well as a quivering fearful populace of serfs.

We should lose some deductions--some of which will affect me--but to sweep them aside en masse is to really fuck up society. Any student of history knows what happens in such cases: the rich win even more. I'm perfectly happy to see the deduction for second houses go, and, in truth, this doesn't affect me, but DOES make a distinction between those with a mere grubstake of property and those with real riches. I'd be happy to lose the child deduction for any child beyond 2, and this DOES affect me. I'd be happy to have capital gains taxed at the full rate, and this DOES affect me.

I'm perfectly willing to take some hits for the common good, but to be called out as some kind of bourgeois leech is galling to me and destructive to all of us. It would be calamity.

We are in fragile times now, so drastic action is not a particularly good thing.

[Name removed]

46. Deleted message

Message removed by moderator. Click here to review the message board rules.

[gratuitous]

51. Next step, the flat tax

Come on, you know you want to.

[slackmaster]

55. You'd eliminate deductions for medical expenses, and for casualty or theft losses?

I suspect you haven't thought this through very thoroughly, dkf.

[Warren Stupidity]

59. So not only do you want to abolish the mortgage deduction

but a family financially devastated by a medical crisis, for example, would get cut no slack by the government. Cool. Your compassion is overflowing.

[WinkyDink]

60. How about if we pay everyone, no exceptions, Minimum Wage? Or maybe NO wages?! Yeah, that's the

ticket!

Did I co-opt your next thread topic?