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1 lostlakehiker  Tue, Nov 27, 2012 8:48:12am

People who bought houses acted in reliance on the government's more-or-less promise that mortgage interest would be deductible. Same as people making retirement plans acted in reliance on another governmental more-or-less promise.

In neither case is the government bound by law to follow through. In both cases, changing the rules now would leave millions of people in situations that will go on for decades, playing out worse than they expected, and stuck with a situation they could not have planned for.

Perhaps there is no way around this kind of governmental default. But let's not play make-believe. Any adverse change to either of these provisions of the current law will be one that runs into the same "fairness objection".

In neither case does any serious player propose to make a change that works against the poor or the near poor, or even the next couple of rungs up. Social security benefit reductions would apply to the fairly well off and not to others, and canceling home mortgage interest deductions would not affect the mass of people who have too few deductions to itemize anyhow. It would not much affect those who have only barely enough deductions to itemize.

2 Randall Gross  Tue, Nov 27, 2012 9:42:56am

re: #1 lostlakehiker

You don't need to do either if you just raise the tax rates on the uber rich to a reasonable rate.

3 sagehen  Tue, Nov 27, 2012 11:48:54am

If they phase out the mortgage interest deduction -- 4 years phasing down for things other than primary residence, then ten years of 10%/yr to get rid of on primary residence...

that won't be a problem for any current homeowner. By that time, your payments are mostly principle.

It will reduce the asking price when you want to sell the place, but I see that as a feature, not a bug. Half the reason for the bubble (and a big part of why housing is so unaffordable now) is that low-income and middle-income people are subsidizing upper-income people's homes.

4 lawhawk  Tue, Nov 27, 2012 1:14:19pm

re: #1 lostlakehiker

Tax rates and all other aspects of the tax code are not immutable. There's no guarantee that rates will remain constant, that other aspects of the Code are never to change and that people will make decisions based on what is at hand. And as historical tax rate changes (among other things) have shown is that the only real constant is that the Code is constantly tinkered with.

There have been several iterations of the Code - 1954 and 1986 being major overhauls. In between there have been significant changes, including the 2001, 2003 and 2009 tax acts that changed rates and adjusted a whole host of tax issues (NOLs, capital gains, etc.).

Adjusting the MID could be done with minimal impact to middle class if you reduce its availability as a percentage of income. For instance, you could start out with a MID adjustment as follows: if you're in the 25% bracket, you'd get 100% of the MID; 90% if you're in the 28%; 80% if you're in the 33%; and 70% in the 35% bracket.

You could then reduce the percentages over time available to the high tax brackets.

Alternatively, one could give the AMT more teeth by essentially eliminating all deductions for high income earners, including on the MID and rolling it back into the basic tax code at a new bracket point (no separate calculations - one simply determines their income without the deductions/credits available to lower bracket taxpayers).

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