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Saturday, October 08, 2005

Oh boy, THIS will sure go over well with already well-off homeowners

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Tax Reformers Eye Breaks for Housing
Mortgage deductions and other benefits are costing more than forecast. With a rising federal budget deficit, they may be scaled back.

Just as the nation's housing boom appears to be slowing, debate is starting among policymakers about reining in one of the most sacred cows of American public policy: the mortgage-interest deduction and other generous tax benefits granted to homeowners......The mortgage-interest deduction saved homeowners $61.5 billion last year. No one expects the commission to recommend its elimination......Instead, the panel may consider scaling back the deduction for mortgage interest on second homes or home-equity loans, and changing the deduction for property taxes, among other things.

Oh no, a proposal that would primarily effect President Jr's base, "The Haves & The Have Mores", that's sure to go over real well, but it's an option being considered because of the brutal fiscal realities President Jr and his brand of "crony capitalism" have inflicted on the US public and treasury

Namely, waging a war and rebuilding a drowned city while still offering tax cuts that benefit only those already at the very top of the economic ladder, while insisting that the necessary corresponding spending cuts come from programs virulently unpopular with the red-meat base of President Jr's supporters-programs that benefit the poor & the middle class, in short, the New Deal programs

And to see how this might play out and break in favor of the shrinking US middle class

Changing the tax benefits for homeowners, even if done slowly, could cause short-term convulsions in the market as buyers recalculate what they can afford. The tumult could be most pronounced for homeowners in states with the highest home prices, such as California. In the long term, housing could become more affordable as some of the stimulus that has sent prices soaring is removed.

Eight years ago, capital-gains taxes were eliminated for home sellers who had profit of as much as $250,000 (for individuals) or $500,000 (for couples). That has created a vast amount of wealth and helped power a housing boom that has seen prices double or triple in Southern California and other hot markets.

Some policymakers and analysts are beginning to wonder whether such breaks are providing the wrong incentives, giving hefty deductions to millionaires buying Beverly Hills estates as well as to speculators snapping up Las Vegas ranch houses, hoping to turn a quick profit.

U.S. Comptroller General David M. Walker said provisions such as the capital-gains exemption were costing the government much more money than anyone forecast when they were first proposed. In a new study, the Government Accountability Office calculated that the exemption drained $29.7 billion from federal coffers last year.

And one big factor that's causing the Feds to look at changing the rules on Home Mortgage Interest Deductions is the Alternative Minimum Tax-an option set up to ensure the wealthy & well off had to pay some taxes-The problem with the AMT is that it's not indexed for inflation, so it catches those who aren't wealthy, and according to the article, those paying it will rise dramatically in the next 10 years

Since the mandate of this commission is to remain revenue neutral, then spending cuts to offset the AMT must be pursued

To the tune of $1.2 TRILLION

Tax expenditures are the government's term for money it forgoes because of targeted tax relief. According to the Government Accountability Office, the number of tax expenditures has risen since 1974 from 67 to 146. The annual amount of lost revenue has tripled during that time, to $728 billion. That's about twice the size of the current budget deficit.

Last winter, Congress' Joint Committee on Taxation recommended repealing the deduction for home equity loans, contending that it was inconsistent with the fact that interest on other types of personal loans are not deductible.

In February, the Congressional Budget Office said cutting the $1-million mortgage deductibility ceiling in half would raise $2.7 billion from 700,000 homeowners.

In effect, leaving the system as it is now means that the primary benefits are going, once again, to the people who least need the help

And the numbers won't make the case for letting those well off continue to benefit at the larger public's expense

The 1997 elimination of capital-gains taxes on home sellers' profits is a particular study in unintended consequences.

A nonpartisan budget group estimated that the capital-gains measure would cost the government $5.8 billion in lost revenue over 10 years. Instead, it's been about 60 times that.

When this story gets more play & exposure, expect those who benefit the most from the current system to howl as if they're being skinned alive, and while President Jr would undoubtedly like to accomodate his base, the War in Iraq and the rebuilidning of New Orleans & the Gulf coast-while keeping the tax cuts for the most upper of crusts intact-the cold reality of eliminating or changing the status quo suggests another set of hard truths may-as so much else has lately-slap Dear Leader W in the face, no matter how well insulated from everyday realities his handlers try to keep him.


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