I'm confused about Mitt Romney's tax policy

[parrot 789]

Because I own a home and the majority of my tax return is MITD. Not to mention that it would also have a ripple effect on the entire housing market.

 

It would have a ripple affect on the housing market because it causes prices to be artificially inflated. That's a bad thing, isn't it?

[Recliner Pilot 61]

This will make Worm's haid splode trying to figure out:

 

The rich paid a higher percentage of the total tax burden AFTER the Bush tax cuts for "The Rich" than they did before the tax cuts.

[KSB2424 3,148]

This is one of the biggest tax credits we have - $100 billion - 12 figures. Why would it not be pretty high on the list of things to look at?

 

Per the bolded; the problem there is that it simultaneously doesn't affect millions of other working homeowners, for no better reason than they don't spend enough on a house, or they don't choose to carry enough debt on that house, and/or they pay their debt down. A federal tax policy that incentives people to carry debt and rewards them more the more debt they carry is one of the dumbest things imaginable. And it sure as fock shouldn't allow you to write off interest on other expenditures simply because you're willing to secure them with your house. It makes it financially beneficial over the short run for people to leverage as much as possible the biggest and most vital asset most will even have. It's really an idiotic policy. This should have become clear in light of the housing bubble collapse, but it didn't, simply because so many people perceive that it helps them.

 

If you want to use tax policy to encourage home ownership, fine. But it should be in the form of a uniform credit and have no relation to how much debt you carry.

 

Yes, this is one of my pet tax peeves.

The mortgage tax deduction didn't create the housing collaspe, any more than any other tax deduction that would give individuals more net pay at the end of the year would.

 

The lenders giving out loans they shouldn't have is the main culprit. When I filled out my loan application and they did a credit check, the lenders look at your income (W2's), how much debt you have, and your credit score. How much mortgage tax deduction you can claim on your personal income taxes shouldn't be a factor. All that is doing is letting me keep a small amount more of the income I earned at my job.

[DankNuggs 305]

It would have a ripple affect on the housing market because it causes prices to be artificially inflated. That's a bad thing, isn't it?

It makes owning a home costlier...

 

Lower interest rates cause values to increase as well, and allows people to buy more house for the same money...Is that a bad thing?

[DankNuggs 305]

The mortgage tax deduction didn't create the housing collaspe, any more than any other tax deduction that would give individuals more net pay at the end of the year would.

 

The lenders giving out loans they shouldn't have is the main culprit. When I filled out my loan application and they did a credit check, the lenders look at your income (W2's), how much debt you have, and your credit score. How much mortgage tax deduction you can claim on your personal income taxes shouldn't be a factor.

Ya, his comment is retarded... 70% of homeowners have a mortgage, people that don't have a mortgage are generally going to be the wealthier sort. I don't see the issue with it... It slightly tilts the scale of rent vs own... and makes owning advantageous. It doesn't wildly affect values, but marginally effecting them to the negative sounds pretty dumb right now as a strategy to spur the economy...

[parrot 789]

The mortgage tax deduction didn't create the housing collaspe, any more than any other tax deduction that would give individuals more net pay at the end of the year would.

 

The lenders giving out loans they shouldn't have is the main culprit. When I filled out my loan application and they did a credit check, the lenders look at your income (W2's), how much debt you have, and your credit score. How much mortgage tax deduction you can claim on your personal income taxes shouldn't be a factor. All that is doing is letting me keep a small amount more of the income I earned at my job.

 

I don't understand your first point there; no other deduction is directly tied to the amount of debt you carry on your home the way the HMID is. It INCENTIVES you to carry debt on your house, and the more you carry, the more benfit you get. That's exactly the point.

 

And no, the HMID probably shouldn't be a factor when banks are deciding what to loan and people are deciding what they can afford, but it most certainly is. The first thing a realtor (who are the real beneficaries of the HMID) will tell you is "Now keep in mind your interest deduction when you're figuring out what you can afford." And the banks look at it the same way.

[DankNuggs 305]

I don't understand your first point there; no other deduction is directly tied to the amount of debt you carry on your home the way the HMID is. It INCENTIVES you to carry debt on your house, and the more you carry, the more benfit you get. That's exactly the point.

 

And no, the HMID probably shouldn't be a factor when banks are deciding what to loan and people are deciding what they can afford, but it most certainly is. The first thing a realtor (who are the real beneficaries of the HMID) will tell you is "Now keep in mind your interest deduction when you're figuring out what you can afford." And the banks look at it the same way.

Not really... people decide on their debt levels based on their income.

 

The interest deduction doesn't allow you to afford a hell of a lot more, people are just used to their year rebate check and it would suck to lose it to the beggars...

[parrot 789]

Ya, his comment is retarded... 70% of homeowners have a mortgage, people that don't have a mortgage are generally going to be the wealthier sort.

 

Having a mortgage is not the key, itemizing your deductions is the key. Many people have a mortgage but do not itemize, thus they get no benefit from the HMID. Or if you own home outright, you get no benefit. This is about half of all homeowners.

[parrot 789]

Not really... people decide on their debt levels based on their income.

 

The interest deduction doesn't allow you to afford a hell of a lot more, people are just used to their year rebate check and it would suck to lose it to the beggars...

 

Yeah, it would suck to lose it, unless you're one of the half of homeowners who don't get it in the first place. That doesn't suck at all.

[IGotWorms 4,060]

I think you are talking about capital gains rates vs ordinary income, and there is very good reason why a disparity between the two should exist.

 

I know he's not going to close the capital gains loophole because that might discourage investment. What I'm wondering is, which loopholes will he close? And who will be hurt by that?

[IGotWorms 4,060]

This will make Worm's haid splode trying to figure out:

 

The rich paid a higher percentage of the total tax burden AFTER the Bush tax cuts for "The Rich" than they did before the tax cuts.

 

No offense RP, but I'm gonna need a link backing up that statement. It would certainly surprise me if it's true.

[IGotWorms 4,060]

Okay, let me put this a different way, because I think this is important.

 

Romney says "I'm going to cut everyone's taxes 20%". Sounds great, right? Sounds fair too, doesn't it?

 

So the amount of money the government brings in is cut. The top earners get their taxes cut 7%, the middle earners get them cut 4%, and so on.

 

The point is: DOESN'T THIS LEAVE EVERYONE BUT THE RICH PAYING A GREATER SHARE OF THE OVERALL TAX BURDEN? Yes everyone got a 20% reduction. So the middle bracket is paying less taxes, which I suppose is nice. But when you add it all up, doesn't their share of the overall proportion of the total tax revenues taken in actually increase?

 

And if so, how does that maintain the "progressivity" of the tax code? It makes it less progressive, right?

 

I didn't get an answer on this. If I'm wrong, please, by all means, point that out to me. I'm just trying to get my head around what exactly Romney is proposing vis-a-vis taxes.

[Recliner Pilot 61]

No offense RP, but I'm gonna need a link backing up that statement. It would certainly surprise me if it's true.

I'm on the road between Lawton, Ok and Bumfukk, Ok right now so I'm not searching for anything.

 

It's true, and you are free to google it yourself if you doubt it.

[KSB2424 3,148]

unless you're one of the half of homeowners who don't get it in the first place. That doesn't suck at all.

The problem here is that the half of people that don't have a mortgage at all either A.) came from a upperclass backgrouds (silverspoon kids), were willed a house from Grandma or Aunt Sally (lucky), or are 45 or older and have been able to pay off their house in 15 years.

 

Do you know who that leaves? Under 50, middle class working familes who more than likely came from meager beginnings. The backbone of America.

 

But yeah, out of ALL the tax deductions..out of all the loopholes and stupid tax credits out there, lets pick on that crowd first.

[DankNuggs 305]

Having a mortgage is not the key, itemizing your deductions is the key. Many people have a mortgage but do not itemize, thus they get no benefit from the HMID. Or if you own home outright, you get no benefit. This is about half of all homeowners.

I just read its a 70/30 split of mortgage/no mortgage.

 

Provide tax relief to people who own homes outright seems like trying to benefit the '30%'ers' over everyone else...

[DankNuggs 305]

I know he's not going to close the capital gains loophole because that might discourage investment. What I'm wondering is, which loopholes will he close? And who will be hurt by that?

I'm curious myself.

[parrot 789]

The problem here is that the half of people that don't have a mortgage at all either A.) came from a upperclass backgrouds (silverspoon kids), were willed a house from Grandma or Aunt Sally (lucky), or are 45 or older and have been able to pay off their house in 15 years.

 

Do you know who that leaves? Under 50, middle class working familes who more than likely came from meager beginnings. The backbone of America.

 

But yeah, lets pick on that crowd.

 

I'm not advocating "picking on" anyone. I don't necessarily oppose the philosophy of using tax policies to try and encourage home ownership, but the HMID is just a really poor way to try to do that.

 

The truth is lots of middle class families never qualify for the deduction at any point, simply because there house does not cost enough. The current median house price is around $150k and 30 year rates are around 4% I think. That's $6,000 in interest at full principal. If you're a married filing joint couple, your standard deduction is about $12k, so you need to have another $6k in deductions before you're able to itemize.

 

There is a direct correlation between income and the percentage of taxpayers who claim the HMID. About a third of households in the $50-$75k income range claim the HMID, whereas 70+% of taxpayers with income over $200k claim it.

[parrot 789]

I just read its a 70/30 split of mortgage/no mortgage.

 

Provide tax relief to people who own homes outright seems like trying to benefit the '30%'ers' over everyone else...

 

Why not provide relief to everyone who owns - or is in the process of owning - their home, rather than making it contingent on debt?

[IGotWorms 4,060]

Why not provide relief to everyone who owns - or is in the process of owning - their home, rather than making it contingent on debt?

 

That's an interesting idea, but I fail to see how it will result in saving money that the government loses through cutting the income tax rates. Aren't you just talking about redefining the mortgage deduction rather than getting rid of it altogether?

[BudBro 183]

in saving money that the government loses through cutting the income tax rates.

worms, in answer to your previous question, the theory is that lowering taxes for everyone means more money for us to spend in the tertiary economy. tertiary is the economy of "want" instead of "need." i need gas for the car and food for the kids and heat for the house, etc. i "want" starbucks and the cable package that has redzone instead of rabbit ears tv or unlimited talk and text instead of 250 anything minutes. those tertiary dollars put money into the economy that moves through a multiplier effect of like 5 times. each tertiary dollar gets spent 5 times on the next thing, increasing the incomes of those businesses, allowing them to hire more people, and eventually joe decides he'll open a coffee shop to compete with starbucks and he hires a couple of people who now pay taxes and julie decides she can open something of her own and she hires a person who now pays taxes, etc, etc. taking money from people in the form of higher taxes reduces the economy by 5 times because that multiplier effect is eliminated. the govt doesn't produce anything, it's a consumer of products in the economy. any monies we pay in taxes is already owed and cannot re-enter the economy.

[redtodd 7]

Having a mortgage is not the key, itemizing your deductions is the key. Many people have a mortgage but do not itemize, thus they get no benefit from the HMID. Or if you own home outright, you get no benefit. This is about half of all homeowners.

 

I think the theory is that if you own it outright or do not have enough interest expense to justify the deduction, it is 20+ years after you initially took out the initial mortgage. When you took out the initial mortgage, $1000 a month was a big hit to your budget and the interest deduction was an aid to be able to get you to own. 20 years later, that same $1000 is not as much of a hit to your budget and the deduction does not benefit you the same as it once did.

 

Right or wrong, the deduction is to spur initial home ownership (I know it was a deciding factor when I first bought). That benefit is reduced over time as your interest expense goes down and your equity goes up.

[parrot 789]

I think the theory is that if you own it outright or do not have enough interest expense to justify the deduction, it is 20+ years after you initially took out the initial mortgage. When you took out the initial mortgage, $1000 a month was a big hit to your budget and the interest deduction was an aid to be able to get you to own.

 

Here's the thing though, it's a price subsidy, which most economists will tell you markets tend to compensate for in the form of higher prices. So there's a question as to whether it really benefits even this class of buyer in the long run.

[redtodd 7]

Here's the thing though, it's a price subsidy, which most economists will tell you markets tend to compensate for in the form of higher prices. So there's a question as to whether it really benefits even this class of buyer in the long run.

 

I totally understand and I think there is something too that. The tough thing is that it is in place now, so what do you do? If you eliminate it, the price of houses will (theoretically and I think most likely) go down further. Is that in the best interest of everyone? Not sure.

[parrot 789]

I totally understand and I think there is something too that. The tough thing is that it is in place now, so what do you do? If you eliminate it, the price of houses will (theoretically and I think most likely) go down further. Is that in the best interest of everyone? Not sure.

 

It would be tough to eliminate for sure. A lot of people love it, even if it doesn't benefit them as much as they think. Maybe a phaseout and/or a conversion to a credit might help the pill go down.

[penultimatestraw 473]

So, using your numbers, the guy at 10% gets a 2% tax cut and the guy at 30% gets a 6% tax cut? That sounds like a bigger cut for the wealthy.

This scares me - are people really this bad at math?

[penultimatestraw 473]

I get that, but the reduction proportionately favors the person at the top. Although everyone gets their taxes halved, that action is much, much more meaningful for people at the top of the scale than the bottom.

Fixed.

[penultimatestraw 473]

This is one of the biggest tax credits we have - $100 billion - 12 figures. Why would it not be pretty high on the list of things to look at?

 

Per the bolded; the problem there is that it simultaneously doesn't affect millions of other working homeowners, for no better reason than they don't spend enough on a house, or they don't choose to carry enough debt on that house, and/or they pay their debt down. A federal tax policy that incentives people to carry debt and rewards them more the more debt they carry is one of the dumbest things imaginable. And it sure as fock shouldn't allow you to write off interest on other expenditures simply because you're willing to secure them with your house. It makes it financially beneficial over the short run for people to leverage as much as possible the biggest and most vital asset most will even have. It's really an idiotic policy. This should have become clear in light of the housing bubble collapse, but it didn't, simply because so many people perceive that it helps them.

 

If you want to use tax policy to encourage home ownership, fine. But it should be in the form of a uniform credit and have no relation to how much debt you carry.

 

Yes, this is one of my pet tax peeves.

I've often thought the same.

[penultimatestraw 473]

Okay, let me put this a different way, because I think this is important.

 

Romney says "I'm going to cut everyone's taxes 20%". Sounds great, right? Sounds fair too, doesn't it?

 

So the amount of money the government brings in is cut. The top earners get their taxes cut 7%, the middle earners get them cut 4%, and so on.

 

The point is: DOESN'T THIS LEAVE EVERYONE BUT THE RICH PAYING A GREATER SHARE OF THE OVERALL TAX BURDEN? Yes everyone got a 20% reduction. So the middle bracket is paying less taxes, which I suppose is nice. But when you add it all up, doesn't their share of the overall proportion of the total tax revenues taken in actually increase?

 

And if so, how does that maintain the "progressivity" of the tax code? It makes it less progressive, right?

Short answer, no. Imagine 3 people earning $10, $20 and $30, taxed at 10, 20 and 30%. The initial tax revenue is:

 

$10 x 10% = $1

$20 x 20% = $4

$30 x 30% = $9

Total tax revenue is $14

So the poor guy pays $1/$14 = 7%, middle guy $4/$14 = 28.5%, rich guy $9/$14 =64% of the tax revenue.

 

Post-reduction the tax rates are 8%, 16% and 24%. Tax revenue is:

 

$10 x 8% = 80 cents

$20 x 16% = $3.20

$30 x 24% = $7.20

Total revenue is $11.20, assuming all deductions remain the same.

Of this revenue the poor guy pays 0.80/$11.20 = 7%, middle $3.20/$11.20 = 28.5%, rich guy $7.20/$11.20 = 64%.

 

The relative contributions are the same. Math is fun!

[IGotWorms 4,060]

Short answer, no. Imagine 3 people earning $10, $20 and $30, taxed at 10, 20 and 30%. The initial tax revenue is:

 

$10 x 10% = $1

$20 x 20% = $4

$30 x 30% = $9

Total tax revenue is $14

So the poor guy pays $1/$14 = 7%, middle guy $4/$14 = 28.5%, rich guy $9/$14 =64% of the tax revenue.

 

Post-reduction the tax rates are 8%, 16% and 24%. Tax revenue is:

 

$10 x 8% = 80 cents

$20 x 16% = $3.20

$30 x 24% = $7.20

Total revenue is $11.20, assuming all deductions remain the same.

Of this revenue the poor guy pays 0.80/$11.20 = 7%, middle $3.20/$11.20 = 28.5%, rich guy $7.20/$11.20 = 64%.

 

The relative contributions are the same. Math is fun!

 

Hmm, OK, you've convinced me. I told you I was bad at math.

[penultimatestraw 473]

Hmm, OK, you've convinced me. I told you I was bad at math.

Note to conservitards: even the liberal elite can be swayed with solid reasoning. Try it sometime.

[cribdog 0]

This scares me - are people really this bad at math?

I would stand behind my numbers and suggest that if you don't agree with them than you are really bad at math.

 

They are each 20% cuts, but 20% of a bigger number leads to a bigger actual percentage point cut.

 

It's called arithmetic.

[IGotWorms 4,060]

I would stand behind my numbers and suggest that if you don't agree with them than you are really bad at math.

 

They are each 20% cuts, but 20% of a bigger number leads to a bigger actual percentage point cut.

 

It's called arithmetic.

 

Well the rich guy definitely gets a bigger cut and saves more money, since he had a higher rate and more money in the first place. In that sense, a Romney tax cut would certainly favor the rich.

 

But the overall tax burden would remain the same, percentage-wise, as penultimate showed.

[penultimatestraw 473]

I would stand behind my numbers and suggest that if you don't agree with them than you are really bad at math.

 

They are each 20% cuts, but 20% of a bigger number leads to a bigger actual percentage point cut.

 

It's called arithmetic.

20% of a big or small number is still 20% The rich would see a greater numeric reduction in their tax bracket only because it started out bigger than the lower brackets; the relationship between the brackets and progressive nature of the system would remain intact, however.

 

If somebody advocated decreasing every bracket by the same number, say 5%, I'm betting you'd complain it favors the rich, too. After all 5% of a larger tax bill is a greater amount of $$$. So the only "fair" solution is decreasing tax burden by a fixed dollar amount - but the rich don't need the $ as much, right?

[cribdog 0]

20% of a big or small number is still 20% The rich would see a greater numeric reduction in their tax bracket only because it started out bigger than the lower brackets; the relationship between the brackets and progressive nature of the system would remain intact, however.

 

If somebody advocated decreasing every bracket by the same number, say 5%, I'm betting you'd complain it favors the rich, too. After all 5% of a larger tax bill is a greater amount of $$$. So the only "fair" solution is decreasing tax burden by a fixed dollar amount - but the rich don't need the $ as much, right?

No, I would say cutting each bracket by 5% actually favors those paying at the lower rate, because that would be a higher percentage of their current tax bill. And decreasing by a fixed dollar amount is just a ridiculous idea.

 

I think the whole problem comes when someone tries to make it easy and say I am going to cut taxes 20% for everybody and that should be fair for all. It is just not that simple.

 

I'm not saying I have a good solution and thus I am not running for president. I just think that a flat 20% cut across the board favors those over the higher brackets.

 

I think my main concern is that with the deficit as high as it is, I don't think we should be cutting taxes at all. I know if my credit card bill gets too high, I bring it down by spending less and making more. I think we as a country should do the same thing.

[penultimatestraw 473]

No, I would say cutting each bracket by 5% actually favors those paying at the lower rate, because that would be a higher percentage of their current tax bill. And decreasing by a fixed dollar amount is just a ridiculous idea.

Hmmmm…so you understand that a fixed % decrement favors the lower rates, but think an across the board 20% cut favors the rich, even though the relative percentages remain consistent with the current brackets/tax burden?

 

Presumably anything less than 5% for the upper brackets would favor the poor even more. But anything greater wouldn't be fair either, as then the wealthier would get a higher % discount (and more monetary savings) than their poor counterparts. And fixed dollar reductions are out, too. How the he!! does one reduce income taxes in your world?

[BunnysBastatrds 2,511]

Hmmmm…so you understand that a fixed % decrement favors the lower rates, but think an across the board 20% cut favors the rich, even though the relative percentages remain consistent with the current brackets/tax burden?

 

Why do you leave out the fact that the rich pay more in taxes than any of us? Whether it's income or ###### tax?

[penultimatestraw 473]

Why do you leave out the fact that the rich pay more in taxes than any of us? Whether it's income or ###### tax?

I didn't leave out the fact that the rich pay more. Believe me, I am very aware of this inequality.