Thursday, September 20, 2007

Hill supports another tax break for the middle and upper classes

From Lesley Stedman Weidenbener in today's C-J:

Homeowners who don't itemize deductions on their federal income tax returns would still get a break for property-tax payments under separate bills filed by U.S. Rep. Baron Hill and U.S. Sen. Evan Bayh.

The lawmakers are aiming to help Hoosier homeowners facing dramatic property-tax increases this year, but the proposals would benefit anyone across the country who pays property taxes but takes the standard federal income tax deduction...

Already, federal law allows people who itemize tax deductions to subtract what they pay in property taxes from their income. That reduces their ultimate tax liability.

But homeowners who claim the standard federal deduction don't get a break for their property-tax payments. In Indiana, that's an estimated 940,000 people, said Bayh, D-Ind.

This part of the proposal, by itself, is attractive. Why should some people get a tax break while others don't? Then again, this still benefits homeowners at the expense of renters-- so more people would get the tax break, but far from everyone. How about we just go with a flat tax-- a lower marginal tax rate with some exempted income based on family size, but no deductions (except perhaps for charity)?

The other problem with this is that any reduction in income taxes will benefit the upper-income classes-- since they are responsible for almost all of the income tax revenues. I don't have a problem with that per se. But it's hilarious and hypocritical to see Democrats rip Republicans (to some great effect) on their "tax breaks for the wealthy"-- whenever the GOP wants to cut income taxes. But now, when two Democrats lead the way, everything is fine.

One could also imagine some wealthy people-- with big houses (and large property taxes) who don't itemize or barely itemize-- who will benefit tremendously from this proposal.

The bottom line issue is that income tax cuts, by definition, must help those who pay those taxes-- and that's almost exclusively the top half of income earners. As always, it's time to bang the "payroll tax" drum. Why don't Democrats work to cut the taxes on income that hammer the working poor and middle class? Lack of imagination, intellect, or will-- or a desire to play politics rather than affect a far more equitable and efficient policy change?

Bayh said yesterday that the legislation would end the "double taxation" that results when people who don't itemize their deductions are paying federal income taxes on money they've used to pay property taxes.

OK, now this is Bayh talking and not Hill-- but isn't it interesting that two Democrats are against "double taxation" in this context. What is their stance on capital gains taxation and estate taxes?

Peter Sepp, vice president for communications for the National Taxpayers Union, said most homeowners should not be taking the standard deduction. That's because interest from a mortgage also qualifies as an income-tax deduction and is available only to those who itemize.

But Sepp said the proposal by Hill and Bayh would particularly help older homeowners who've paid off their mortgages and have little other reason to itemize their deductions. He said the group would support the idea.

"Anything that keeps a few more tax dollars from being swallowed up by the federal beast would be a reason to celebrate," Sepp said. "Taxpayers in high property-tax states would rejoice over something like this."

Another interesting point. Although Bayh and Hill intend this to help Hoosiers, it will end up redistributing money from low property-tax states to high-property tax states!

The legislation would cost $7 billion to $13 billion, Bayh said.

Under the pay-as-you-go budgeting system in Congress, lawmakers would likely have to find reductions in spending to offset the revenue loss. Bayh said that could be done by closing some corporate offshore tax loopholes or by money made available if the United States ends its operations in Iraq.'s those pesky trade-offs. It should be interesting to see how Democrats negotiate this after claiming to tie their own hands in a slightly more fiscal-conservative posture.


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