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New Income Tax Proposals; Screw the Blue Staters
Topic Started: Nov 1 2005, 11:15 PM (437 Views)
Steve Miller
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Bull-Carp
Tax 'em Till They Turn Red
The Bush tax panel's plan to screw Democrats.
By Daniel Gross
Posted Monday, Oct. 31, 2005, at 5:02 PM ET

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Let's screw them blue-staters.

The president's Advisory Panel on Federal Tax Reform will present its proposals tomorrow, and the bipartisan commission seems to have reached the following conclusion about how to improve revenue collection: Screw the blue states.

In the name of simplification and fairness, the panel is proposing to do away with the dreaded Alternative Minimum Tax, a pernicious levy that effectively increases taxes on millions of people each year by robbing them of some deductions for property taxes and state and local income taxes. According to the Treasury Department, some 4 million Americans will pay the tax in 2005. If Congress doesn't extend a law that limits the reach of the AMT, it could hit 21 million people next year. Abolishing the AMT would seem to be good news for blue-staters, since it falls largely on people who live in Democrat-dominated areas.

But to do away with the AMT, the reformers must replace the expected $1.2 trillion in revenue it would throw off over 10 years. And, as David Rosenbaum reported in an Oct. 19 New York Times article (which you now have to pay to read online), the panel came up with two simplification plans. Both would severely limit the size of the home mortgage deduction. Now the deduction applies to up to the first $1 million of a mortgage. The panel's plans would cut it down so that it would only apply to loans that are the "maximum that the Federal Housing Administration will insure." The sum varies by market, but the maximum is $312,895 and the national average is $244,000. Both plans would eliminate deductions for interest on home-equity loans or mortgages for vacation homes. And both would eliminate the deduction for state and local taxes paid, including property taxes.

On the one hand, gutting the mortgage-interest deduction seems progressive, because the deduction now favors the well-off: The mortgage deduction gets more generous the more expensive the home you buy, and the more income you have. And property taxes are generally a function of home size and value. On the other hand, regional variations in home prices and state and local taxes would heavily skew the burden of these tax changes onto blue-staters. Who has the most to lose if the mortgage deduction is capped at $313,000, and if you can no longer deduct local taxes from your taxable federal income? People who live in places where (a) real estate is expensive; (b) states and/or cities tax income; and © property taxes are high, to support local schools and services. In other words, people who live in California, Seattle, the entire Atlantic seaboard from Maryland up to Maine, and well-off suburbs of Chicago. If you live in a $300,000 McMansion in a state with no income tax, like, say, Texas or Wyoming, these changes aren't likely to affect you at all. But if you just bought a $700,000 house in Takoma Park, Md., you're screwed three ways.

Many of the people writing and talking about these issues suffer from one of two kinds of myopia. There's blue-state myopia. Classic sufferers: Moneybox, Moneybox's editors, many of Moneybox's readers. These are people who think you have to pay seven figures to get a nice house with a nice yard in a nice suburb, or who think its normal to borrow $800,000 to buy a two-bedroom condo in a dicey neighborhood.

Then there's red-state myopia. Connie Mack, the Republican ex-senator who is co-chairman of the tax advisory panel, is a classic sufferer. When asked by the New York Times Magazine whether limiting the deduction could "hurt the middle class and discourage people from buying, say, a $500,000 house?" he responded: "It depends on how you define middle class. I don't think that there would be a large percentage of middle-income families that would have a $500,000 house." Mack has obviously never spent much time in Staten Island, N.Y., where Vito Fossella, one of the few remaining Republican members of Congress in the Northeast, has already come out against the panel's ideas. In the high-population, high-income states—the states that, by the way, produce a disproportionate share of federal income taxes—plenty of middle-class people live in $500,000 homes.

In both instances, the myopia can be cured by a simple exercise. Go to Realtor.com, punch in your ZIP code and a price point, then punch in another ZIP code in a different part of the country and the same price point, and check out the astonishing difference in what you get.

To a degree, the AMT payers have only themselves to blame. People choose to live in places that have high property values and higher taxes, and for some pretty rational reasons. They like the beach. Schools tend to be better in places where property taxes are high. There may be a wider variety of high-paying jobs available. What's more, they've generally chosen to back the wrong horses over the last several years. Bush didn't seriously compete on the Atlantic seaboard or on the West Coast in 2000 or in 2004. And the Republicans who remain—feeble moderates like Lincoln Chafee in Rhode Island and Rep. Chris Shays in Connecticut—aren't part of the in crowd. Is it any surprise that the changes recommended by a commission appointed by the president would probably have the worst effects on Democratic areas?
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apple
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i doubt if 'blue' states would be affected more.

('confused' i thought y'all wanted to raise taxes)
it behooves me to behold
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Mark
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HOLY CARP!!!
This is NOT tax code reform!

It is shuffling and nothing more.

Assholes!
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JBryan
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Steve Miller
Nov 2 2005, 02:15 AM
Then there's red-state myopia. Connie Mack, the Republican ex-senator who is co-chairman of the tax advisory panel, is a classic sufferer.

Talk about myopia, wouldn't it be fair to mention that the other co-chairman is John Breaux, Democrat and former senator from Louisiana, another red state?

There are a lot of Conservatives that do not like this plan. For one thing, the idea that everything government gives with one hand has to be taken away by the other because of flat earth static notions of offsetting all cuts with reciprocal increases is in serious need of revision. But, more specifically, there is a lot of concern about what reductions in the home mortgage deduction and elimination of property tax deduction will do to the housing market which is probably most consumers' best performing asset today.
"Any man who would make an X rated movie should be forced to take his daughter to see it". - John Wayne


There is a line we cross when we go from "I will believe it when I see it" to "I will see it when I believe it".


Henry II: I marvel at you after all these years. Still like a democratic drawbridge: going down for everybody.

Eleanor: At my age there's not much traffic anymore.

From The Lion in Winter.
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Mark
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HOLY CARP!!!
I have given up hope that our government can ever be fixed.
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When I see an adult on a bicycle, I do not despair for the future of the human race. H.G. Wells
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John D'Oh
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MAMIL
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But, more specifically, there is a lot of concern about what reductions in the home mortgage deduction and elimination of property tax deduction will do to the housing market which is probably most consumers' best performing asset today.


Speaking for myself, it's about my only asset :(

This doesn't seem to be a very conservative policy, it's just playing with the numbers. I've never really believed in this administration as truly conservative, except with regard to social issues. I guess you could argue whether the foreign policy is conservative or not, although it's probably better not to turn those issues into a left/right thing, even though both sides do.

Speaking as a fiscally conservative social liberal ( :crazy: ), I think it sucks.
What do you mean "we", have you got a mouse in your pocket?
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Rick Zimmer
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So, let me see if I get the Bush tax philosophy right.

In the first term, one of the accomplishments he touts the most was a massive tax cut, overwhelmingly for the wealthiest of Americans, that has helped bankrupt the nation.

Income distribution upwards.

Now, in the second term, rather than modifyand index the AMT so that it does not hit those it was never intended to hit, it is to be totally done away with so that those in a position to take advantage of the myriad of tax shelters -- mainly the wealthiest of Americans -- won't even have to pay the AMT.

Income distribution upwards.

And then, rather than replace the revenues lost in the AMT by the middle class again being exempted by a increasing taxes on the wealthiest, we severely limit one of the few tax shelters available to the typical middle class taxpayer.

Income distribution upwards.

Do we see a pattern here?
[size=4]Violence is incompatible with the nature of God and the nature of the soul -- Benedict XVI[/size]
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JBryan
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Actually, this is not an Administration proposal. It is just one that was cooked up by a bi-partisan panel the Administration put together. It is not a conservative proposal and, unless the Admiunistration blesses it, it is not an Administration proposal either.
"Any man who would make an X rated movie should be forced to take his daughter to see it". - John Wayne


There is a line we cross when we go from "I will believe it when I see it" to "I will see it when I believe it".


Henry II: I marvel at you after all these years. Still like a democratic drawbridge: going down for everybody.

Eleanor: At my age there's not much traffic anymore.

From The Lion in Winter.
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Phlebas
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Bull-Carp
JBryan
Nov 2 2005, 05:51 AM
Steve Miller
Nov 2 2005, 02:15 AM
Then there's red-state myopia. Connie Mack, the Republican ex-senator who is co-chairman of the tax advisory panel, is a classic sufferer.



But, more specifically, there is a lot of concern about what reductions in the home mortgage deduction and elimination of property tax deduction will do to the housing market which is probably most consumers' best performing asset today.

That's the first thing I though of when I read about this the other day. How clueless can they get?
Random FML: Today, I was fired by my boss in front of my coworkers. It would have been nice if I could have left the building before they started celebrating. FML

The founding of the bulk of the world's nation states post 1914 is based on self-defined nationalisms. The bulk of those national movements involve territory that was ethnically mixed. The foundation of many of those nation states involved population movements in the aftermath. When the only one that is repeatedly held up as unjust and unjustifiable is the Zionist project, the term anti-semitism may very well be appropriate. - P*D


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John D'Oh
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MAMIL
Quote:
 
Actually, this is not an Administration proposal. It is just one that was cooked up by a bi-partisan panel the Administration put together. It is not a conservative proposal and, unless the Admiunistration blesses it, it is not an Administration proposal either.


OK, my bad. My opinions regarding the lack of direction regarding the administration's monetary policy still stand though.
What do you mean "we", have you got a mouse in your pocket?
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JBryan
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They haven't done much to restrain spending.
"Any man who would make an X rated movie should be forced to take his daughter to see it". - John Wayne


There is a line we cross when we go from "I will believe it when I see it" to "I will see it when I believe it".


Henry II: I marvel at you after all these years. Still like a democratic drawbridge: going down for everybody.

Eleanor: At my age there's not much traffic anymore.

From The Lion in Winter.
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John D'Oh
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MAMIL
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They haven't done much to restrain spending.


Quite the opposite, in fact. Reducing taxes and increasing spending is going to give the next president a difficult job. Does it remind you of anybody?
What do you mean "we", have you got a mouse in your pocket?
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JBryan
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Actually, the tax reductions have caused a net increase in revenues through increased economic growth. It is the spending I find problematic.
"Any man who would make an X rated movie should be forced to take his daughter to see it". - John Wayne


There is a line we cross when we go from "I will believe it when I see it" to "I will see it when I believe it".


Henry II: I marvel at you after all these years. Still like a democratic drawbridge: going down for everybody.

Eleanor: At my age there's not much traffic anymore.

From The Lion in Winter.
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Steve Miller
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JBryan
Nov 2 2005, 07:29 AM
Actually, the tax reductions have caused a net increase in revenues through increased economic growth.

Maybe a little, but not much.

The deficit spending to pay for the war has done a lot more to stimulate the economy than the tax cuts did.
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John D'Oh
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MAMIL
The problem is that reducing taxes is relatively easy, and generally pretty popular. Cutting spending is neither of those things. If you want to follow a better conservative model, first cut spending, then reduce taxes.

Excessive spending in a second term of office is a bit of an 'undocumented feature' with the otherwise very good system of allowing no more than two terms.
What do you mean "we", have you got a mouse in your pocket?
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JBryan
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I am the grey one
Actually, both is what I would prefer to see. I would characterize the current administration and the Republican Congress a certain way but I would probably do injustice to seafarers who enjoy their drink.
"Any man who would make an X rated movie should be forced to take his daughter to see it". - John Wayne


There is a line we cross when we go from "I will believe it when I see it" to "I will see it when I believe it".


Henry II: I marvel at you after all these years. Still like a democratic drawbridge: going down for everybody.

Eleanor: At my age there's not much traffic anymore.

From The Lion in Winter.
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apple
one of the angels
i wish they'd talk about saving
it behooves me to behold
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QuirtEvans
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I Owe It All To John D'Oh
The two big issues I see are these:

1. It will kill the housing market (as noted above).

2. People made major economic decisions based on the existing tax code. Revamping the tax code in a way that punishes people who made rational decisions based on reasonable expectations (the mortgage deduction has been around for how many years?) is generally unfair. If you do it to millions of people, with respect to their most valuable asset, it's also bad politics.

The only reasonable way to do this would be to make it effective ten years out, or phase it in gradually over an equal sort of period. The housing market would adjust gradually, people would have a chance to change their decisions or to pay off their mortgages, etc.

But, basically, I don't think it has any more of a chance than W's ill-advised Social Security reform plan.
It would be unwise to underestimate what large groups of ill-informed people acting together can achieve. -- John D'Oh, January 14, 2010.
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John D'Oh
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MAMIL
The advantage with cutting the costs first is that the introduction of 'a clear cost-cutting measure' sometimes doesn't. Of course, tax cuts don't always, either.

I think that the term of office is too mature for them to start doing anything about it now, unfortunately. They've made their bed, and the next administration gets to lie on it.
What do you mean "we", have you got a mouse in your pocket?
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Nina
Senior Carp
There's also a huge psychological factor. Owning your own home has long been part of the American Dream. The government has traditionally helped its citizens become homeowners through the mortgage deduction.

To take away that deduction now (particularly when housing costs are through the roof) is going to be read by many people as a "screw you" approach.

I think removing the mortgage deduction is a truly boneheaded maneuver, regardless of what the financial models say. It sends the signal that the White House is out of touch, and completely removed from the lives of "regular people." (JB, I understand your point about it not being an administrative proposal, just playing out the tape if it becomes one.)
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Nina
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Mark
Nov 2 2005, 06:48 AM
This is NOT tax code reform!

It is shuffling and nothing more.

Assholes!

Absolutely true.
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ivorythumper
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I am so adjective that I verb nouns!
But this AMT needs to go, unless it gets indexed to the 1969 dollar value. (not holding my breath).

How many of you got hit with it?
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Nina
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I don't know if the AMT needs to go, but certainly the trigger point needs to be adjusted up.

I've been hit with it every year since 1998.
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