Wednesday, November 02, 2005

Time to be a moderate?

I heard this morning on the radio (it might have been Fox because I have XM) that a woman that was pro-choice, a self declared feminist, was considered conservative because she supported Bush in the war on terror. Welcome to the moderate base.

Yesterday, the commission on tax reform released it's report. It made some suggestions, one of which was the elimination of the tax deductibility of mortgage interest. Now many people like that deduction because all by itself it can make itemizing deductions better than the standard deduction. The other suggestion was the elimination of deductions for state and local taxes. Let us take one at a time.

Mortgage deduction. Get over it. Come on people! If your income is $100,000, tax rate is 35% and your mortgage of $250,000 has an interest rate is 5%, taking nothing else into consideration, you will save about $4375 in taxes...but if we reduce the rate to 30% and eliminate the deduction, you would save $5000 in taxes. And that is just this year. Next year your interest deduction will be smaller, your income higher and your tax bill greater. The reduction in the tax rate means less taxes paid on the higher income.

A lower overall tax rate generally speaking is better than just about ANY deduction. With an emphasis on deductibility, the only way to continue to benefit is to take ever larger mortgages (or higher interest rates)....does anyone else see the stupidity in THAT? Removing the deductibility does something else much harder to quantify: it removes the leverage of some special interest groups in tax policy, and that should be very welcome.

State and local taxes. One argument local officials make in raising taxes is that it will hurt less because of deductibility. Of course the problem is that state and local tax increases hurt the lowest income people most and they are less likely to be able to get any relief from deductibility. This argument needs to be ignored, getting local and state taxes lowered is the place to fight.

Simplifying the tax code reduces the dependence on tax accountants, improves tax collections and allows the economy to act with less bias.

Alito. It looks like Bush did find a moderate conservative. Yea!

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