November 14, 2010

Stemming the Flood of Red Ink that Threatens the Nation’s Future

While national problems rarely affect the Real Bay Area, it’s important that the brilliant people of Silicon Valley come up with solutions.  After all, solving difficult challenges is part of what makes the RBA so Special.  Are you up for it?

Big ideas for cutting deficit, but they’d hurt

By ANDREW TAYLOR, Associated Press Thu Nov 11, 4:17 pm ET

WASHINGTON – Voters who demanded Washington rein in the nation’s spiraling debt are getting a message from President Barack Obama and leaders of his deficit commission: It’ll hurt.

Erskine Bowles, Alan Simpson A proposal released Wednesday by the bipartisan leaders of the commission suggested cuts to Social Security benefits, deep reductions in federal spending and higher taxes for millions of Americans to stem the flood of red ink that they say threatens the nation’s very future. The popular child tax credit and mortgage interest deduction would be eliminated.

Interest groups on the right and the left squealed, predictably, about the plan, which would cut total deficits by as much as $4 trillion over the next decade — much of it from programs long considered all but sacred.

The full commission has yet to make its recommendations, and the chairmen acknowledged their plan was so controversial that it’s dead on arrival. But they said putting it forth would prompt a more realistic national debate about what it will take to solve the nation’s fiscal woes.

Ah, some actual proposals to balance the nation’s budget!  Cut Social Security!  Chop Federal Spending!  Raise taxes for everyone, including big business!  Eliminate loopholes and special-interest giveaways!  Bye-bye, child tax credit!  No more mortgage interest deduc– HEY WAIT A MINUTE!

We are far better off building 1 or 2 fewer Predator Drones a year than eliminating the mortgage interest deduction!  The mortgage interest deduction is untouchable.  It is a sacred trust between our government, the construction industry and NAR that no matter how many jobs are shipped overseas, our economy will always be kept running by selling houses to each other.  Eliminate the mortgage interest deduction?  What a stupid, short-sighted, un-American idea!

Cut the break to half a million instead of a one million dollar mortgage? Unacceptable.  Try finding a house in the Real Bay Area for half a million.  That’s locale discrimination.  RBA residents already pay for that when trying to apply for college financial aid.

Calvin Johnson, a tax professor at the University of Texas, said that only those in the top third of wage earners even itemized their deductions, meaning that two-thirds of taxpayers weren’t eligible for the break.

“No one can make a serious intellectual argument in favor of the mortgage interest deduction,” he said. “Why should the government subsidize homeowners rather than renters? The only thing it’s good for is middle-class votes.”

Oh no.  It’s good for RBA property values, which means it’s good for college tuition.  Isn’t everybody in the RBA itemizing their tax deductions, anyway?

Please share your thoughts on other ways to address the deficit but leave the mortgage interest deduction out of it!  And the capital gains tax break on home sales is off the table, too!

Comments (22) -- Posted by: madhaus @ 5:09 am

22 Responses to “Stemming the Flood of Red Ink that Threatens the Nation’s Future”

  1. Petsmart Groomer Says:

    I wonder how reducing the top tax bracket to 23% is going to reduce the deficit. One of the options in the plan is to have only 3 tax brackets (8, 14 and 23%), WTF?

    A few ideas:
    – reduce defense budget (2011 defense budget: $708 billion)
    – remove or at least increase cap on Social Security tax
    – legalize euthanasia and automatically give power of attorney to grandchildren
    – tax sushi at higher rate
    tax rich people more (add 40% tax bracket for example)
    – give Michigan to Canada

  2. madhaus Says:

    Today’s NY Times has a balance-the-budget yourself tool.

    Unfortunately, you have to use their budget questions only. I was also stunned to see that spending on healthcare is now more than spending on the military.

    The mortgage interest deduction is one of the items you can select, but not the capital gains exclusion on sale of a primary residence. But the item that saved the most money was letting the Bush admin tax cuts expire.

  3. nomadic Says:

    Calvin Johnson, a tax professor at the University of Texas, said that only those in the top third of wage earners even itemized their deductions, meaning that two-thirds of taxpayers weren’t eligible for the break.

    I have a seriously hard time believing this. Maybe it’s a recent development? When I bought my first house at 22, I didn’t make much money but still itemized.


    Groomer – thanks for the good laugh! Euthanasia AND giving Michigan away. :-P

  4. SEA Says:

    That mortgage interest tax deduction is akin to Proposition 13: It only applies to the good citizens.

    And besides, no one is talking about changing the tax rules for rentals. I say eliminate the tax deduction of rental expenses. In other words, let’s tax gross rental receipts. Why should only landlords be the only ones deducting the cost of light bulbs and Drano? Oh, and what’s that bit about depreciation? I’m sure there is something about landlords are owners, and thus good citizens, so they should get more, not less, or something.

  5. Cody Says:

    Let’s tax all income over $1 million at 100% because if they’ve made that much money you know they stole it.

  6. Real Estater Says:

    The red ink is actually a well timed strategy. As we all know, the U.S.’s economic troubles is all China’s fault /blink/. They’ve been playing the despicable game of currency manipulation, causing their products to be artificially cheap, thereby making our products too expensive. In order to counter that, we must lower the dollar by printing more money. Essentially this is free money, funded by the devaluation of the dollar, at the expense of the stupid foreigners (aka Chinese) who invest in our currency. The unspoken economic policy of our government is the opportunity of a life time: Stimulate the U.S. economy by using other people’s money. Look at all the great projects we are able to launch: high speed rail, healthcare reform, cash for clunkers, bank bailouts, etc. No worries,folks. Smart minds and powerful forces are at work in Washington!

  7. MrBEE Says:

    Increase taxes on white people and especially white males. Call it the “reparations tax”.

    Anything else would be objectively racist.

  8. Mole Man Says:

    These recommendations are really good. Politically every proposal is a bitter pill, but in a way that is a good sign. It was surprising to see so many good ideas in the draft report after Senator Simpson’s outbursts. Maybe a mean old man is exactly what is needed for this work.

  9. nomadic Says:

    Post #6 sounds awfully familiar, but this time I think he’s being sarcastic…

    Mole Man – can an old man be mean enough for this? The senior citizens will be howling the loudest.

  10. SEA Says:

    I’m guessing that post #6 is suggesting to borrow today and pay back tomorrow in cheaper dollars?

    You know, but that RBA property today using Other People’s Money, and two things happen:

    1. The debt is easier to pay back (cheaper dollars)
    2. The RBA property goes up even more, since the dollars are worth less, the RBA housing is definitely worth much more (doubles every 5 years, maybe?).

  11. Petsmart Groomer Says:

    Some more reading for those interested: Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes.

    Let’s tax all revenues, not just profit. That should reduce the deficit and get rid of the dead wood at the same time.

    Real™ Estater, make sure you use “powerful forces” and “unleash” in the same sentence for a more dramatic effect.

  12. Pralay Says:

    In order to counter that, we must lower the dollar by printing more money.
    —-

    Sorry to hear that the “tremendous pressure from powerful forces in Washington” did not work and now the only option “we” have is doing exactly the thing what China did.

  13. Real Estater Says:

    Who says it did not work? We are making it work by lowering the dollar. It’s the same effect whether China cooperates or not.

  14. SEA Says:

    Real Estater- Is cash for clunkers a real(ly) powerful force, and what’s left today?

  15. SEA Says:

    By the way, I like the fact that we send to China little green pieces of paper, converted into electrons, and they send boatloads full of goodies. What could be a better trade? Would it be better if we sent boatloads of goods for little pieces of paper?

  16. Real Estater Says:

    That’s right. This country does not need to make anything. That’s the meaning of being at the top of the food chain.

  17. DreamT Says:

    The majority of “this country” will never qualify for “top of the food chain” jobs. So, your logic leads to the conclusion that this country does not “need” 310M people and should enact a program to rid of them.

  18. madhaus Says:

    Hmmm. That would mean no more housecleaners, gardeners, Porsche detailers, Star Bucks barristas, or Dynasty cart pushers.

  19. SiO2 Says:

    #3 Nomadic, when you bought your first house, did you live in CA? It’s pretty common for CA residents (even non renters) to itemize due to the state income tax. Whereas in other states which don’t have state income tax, one may use the standard deduction even when owning. If a non-CAer has a $100k mortgage, interest is let’s say $4500. Property tax rates tend to be higher than 1% in other states, so let’s say that prop tax is $4000 in this place. Total = $8500. Std deduction for married filing jointly is $11,400, so this person would not itemize.

    In CA, where house prices and salaries (therefore state income tax) is higher, it’s not hard to overcome the std deduction. We tend to run into a different problem, which is that prop tax is not deductible under AMT, and that if you make over $166k then interest deductions are reduced.

    I wonder if this tax proposal gets rid of AMT. It seems to take the standard taxation and make it more like AMT – fewer brackets, lower rate, fewer deductions. I’d love to get rid of AMT just for simplicity.

    By the way, the quote says that 2/3s of filers take the std deduction, not 2/3s of homeowners. Corroborated by wikipedia.

  20. nomadic Says:

    #19, Si02 – no, I was in flyover country then. I doubt I could’ve afforded a house in CA at that point. I think state income tax maxed out around 6% there and I probably didn’t hit it. Definitely lower than here. However, interest rates were 2-3x what they are now so my $110k mortgage incurred nearly $10k in interest the first year. Add property taxes of a couple grand and the standard deduction has been exceeded.

    By the way, the quote says that 2/3s of filers take the std deduction, not 2/3s of homeowners.

    Good clarification, thanks.

  21. Real Estater Says:

    SiO2,

    Totally agree about the AMT!

  22. SiO2 Says:

    The proposal does get rid of AMT.
    Or, alternatively, it makes the standard taxation more like AMT (lower rate, fewer deductions).


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