Of all the deductions woven into the sprawling U.S. tax code, few have been more fiercely guarded than the enormous tax break that lets homeowners deduct the interest they pay on their mortgages.
But as Congress and the White House negotiate the first major rewrite of tax laws in decades, changing the generations-old mortgage-interest deduction — which costs the government roughly $100 billion a year — has gone from far-off possibility to part of the conversation.
The outcome of that debate could have profound long-term effects on homeowners across the country — and particularly those in the Washington area, who tend to benefit from the tax break more than many other Americans due to the region’s hefty home prices and high incomes.
As the Obama administration and lawmakers on Capitol Hill scramble to defuse automatic spending cuts and tax increases set to take effect Jan. 1, a herd of sacred cows — from Social Security and Medicare to deductions for charitable giving and mortgage interest — are in danger of losing their untouchable status.
A federal judge sentenced former New York state Sen. Nicholas Spano on Monday a year and a day in prison for obstructing tax fraud.
Spano, 59, pleaded guilty in February to one count of obstructing and impeding the due administration of tax laws.
The Yonkers resident had represented New York’s 35th district in the state Senate from 1987 to 2006. His duties included approving the state’s operating budget, which included funding for the Office of General Services.
Prosecutors said a White Plains-based insurance company began paying Spano $1,500 a month to act as an outside consultant in 1993.
After the Office of General Services awarded that company a lucrative contract to become the state’s broker of record in 1996, Spano’s monthly retainer increased to $5,000. The payments jumped again to $6,000 a month in 1999. Between 2002 and 2008 when the company lost its state contract, it paid Spano $8,333.33 a month, or $100,000 a year.
Dentist Frank Illuzzi was stunned when Vermont tax collectors began demanding a 6 percent sales tax on the value of toothbrushes and floss he hands out to patients. Senior care facility operator Jay Grimes was similarly surprised to get a $350,000 bill slapping a 9 percent restaurant tax on the meals served to residents in the dining room. Landscaper Richard “Buckwheat” Lowe got $18,000 in bills taxing him for the first time ever on the mulch he sells.
Vermont is among a handful of cash-strapped states getting more aggressive about collecting every tax owed — hiring more collectors, hounding scofflaws and exploiting corners of their tax laws that haven’t been enforced in years. It’s an effort to avoid what politicians from both parties are dead set against: raising taxes.
“You don’t want to raise taxes until you’re very sure the taxes that people are supposed to pay are being paid,” said Rep. Janet Ancel, chairwoman of Vermont’s House Ways and Means Committee.
Under adamant no-new-tax Democratic Gov. Peter Shumlin, Vermont has added about 10 new tax compliance auditors and has stepped up efforts to scour records in rural areas, and add greater scrutiny to businesses ranging from auctioneers to Internet-based cloud-computing services.
But for all its aggressiveness, Vermont’s results have been mixed. The state reaped about $57 million during the 12 months that ended in June, up from about $50 million five years earlier — a net gain of $7 million. That’s a tiny fraction of the state’s $1.3 billion general fund, but it has helped lawmakers close a budget gap that at the beginning of this year was projected to be $46 million.
Other states have had much more success.
Buying a home can cause big headaches and quickly empty your wallet. Just ask an estimated 20 buyers in Atlanta who purchased vacant homes from two antigovernment “sovereign citizens” who are now accused of selling residences they didn’t own.
Edgar Lee Rodgers and Diana Rowe were arrested last week on charges of racketeering and theft-by-deception charges, authorities say.
The alleged house-stealing, still being investigated by the Atlanta Police Department’s fraud unit, is the latest wrinkle in the sovereign-citizen movement, with similar cases cropping up earlier in Georgia and a few other states as well. The government-hating sovereign citizens think most criminal and tax laws don’t apply to them and they can pretty much do whatever they want — apparently including squatting in and selling vacant houses. The FBI recently identified sovereign citizens as a significant “domestic terrorist” threat.
In Atlanta, Rowe and Rodgers, who called himself “Immanuel Hood,” are accused of locating vacant homes, then convincing unsuspecting buyers looking for hot deals to use the state’s adverse possession law to take over vacant homes.
WXIA-TV reported last week that at least 20 people fell for the scheme, losing not only “down payments” ranging from $1,000 to $9,000, but, in some instances, the costs of initial repairs they undertook on houses they thought they were buying.
Many of the homes involved were owned by an international missionary organization, according to various media reports.