If you want to see where US taxes are heading over the next 5 to 10 years, you need to read this superb article by Len Burman: http://finance.senate.gov/hearings/testimony/2008test/051308lbtest.pdf

Burman is comprehensive, proposing a new Value Added Tax earmarked to health care and with a tax rate tied to health care expenditures. This novel twist gives all consumers a stake in limiting the federal government's expenditures on health care.

He also proposes reform of the income tax, payroll tax, and estate tax. You name it, he addresses it. I don't typically agree with Burman's proposals, but this 27-page outline of tax overhaul is the best single article I have ever read on Tax Reform. It's completely even-handed, presenting the best arguments on all sides of each issue. It's visionary. Green for Burman.

myf16 said:If you want to see where US taxes are heading over the next 5 to 10 years, you need to read this superb article by Len Burman: http://finance.senate.gov/hearings/testimony/2008test/051308lbtest.pdf

Burman is comprehensive, proposing a new Value Added Tax earmarked to health care and with a tax rate tied to health care expenditures. This novel twist gives all consumers a stake in limiting the federal government's expenditures on health care.

He also proposes reform of the income tax, payroll tax, and estate tax. You name it, he addresses it. I don't typically agree with Burman's proposals, but this 27-page outline of tax overhaul is the best single article I have ever read on Tax Reform. It's completely even-handed, presenting the best arguments on all sides of each issue. It's visionary. Green for Burman.

Before I even read it, I sure as hell hope it gets rid of the F*&^ing mortgage interest deduction (somehow I really doubt it though). That's got to be one of the stupidest tax laws on the books, and also one of the major contributors to the housing bubble. Think of how great it would be if people could no longer say "sure I bought more house than I need, but all that interest is tax-deductible!"

And before anyone asks, I am a homeowner and take advantage of that deduction. But I'd prefer if the tax code didn't encourage homeownership. Owning a home should not be a decision made based on tax consequences.

Auream said:Owning a home should not be a decision made based on tax consequences.It's not. I could be wrong but people who are buying more house than they can afford may not be even aware of tax consequences. It's greed, stupidity and easy access to mortgages that contribute to that.

Aticle Link

Auream said:I sure as hell hope it gets rid of the mortgage interest deduction

From the bottom of page 13: "The mortgage interest deduction would be replaced by a flat 15 percent refundable tax credit paid directly to lenders."

I have seen other proposals to replace the mortgage interest deduction with a capped tax credit for first-time homebuyers only.

bombcarPaid to said:lenders? So they get 15% more money while the people living in the house have to pay additional taxes compared to now?
I think the idea is that the lenders will be required to credit that amount to the borrower, but that the lender-IRS interface is easier to regulate than a borrower-IRS interface.

czarandy said:This plan doesn't seem to address payroll taxes much. First, why should we event keep them around? Why not just raise all the income tax rates and eliminate payroll taxes as a separate event? Having half the cost paid by the employer hides half the tax. In the article he claims that lots of households pay 0% income tax rates. But all of them pay payroll taxes, of ~15% of their earned income. OTOH, if I had $100,000 in dividend income/year I'd also pay 15%, but he seems to consider that "different".

"Since health care for the elderly would be financed through the VAT, the Medicare portion of payroll taxes (1.45 percent on employers and employees) would no longer be necessary. Moreover, elimination of the ESI exclusion would significantly increase contributions to Social Security, substantially bolstering its finances." (ESI = Employer-Supplied Insurance)

So payroll taxes would drop to 6.2%.

Also, Burman adds a general disclaimer: "Obviously many details are left out of this short sketch. Gale (2008) discusses individual and corporate income tax simplification, base broadeners, and compliance initiatives in more detail. There would also surely be significant administrative issues in setting up the new credits. In addition, some of the proposals are probably not politically feasible, and there would inevitably be a great deal of redistribution compared with current law. But the role of the political process is to vet the political and policy issues and balance them out. The key is for the president and congressional leaders to commit to keep the process moving toward the broad goals agreed to at the outset."

ArbolLoco said:Auream said:
Before I even read it, I sure as hell hope it gets rid of the F*&^ing mortgage interest deduction (somehow I really doubt it though). That's got to be one of the stupidest tax laws on the books, and also one of the major contributors to the housing bubble. Think of how great it would be if people could no longer say "sure I bought more house than I need, but all that interest is tax-deductible!"

And before anyone asks, I am a homeowner and take advantage of that deduction. But I'd prefer if the tax code didn't encourage homeownership. Owning a home should not be a decision made based on tax consequences.Wow, are you so angry that you're willing to pay thousands of dollars a year of your own money merely to punish others?

Yes, not to "punish" others, but to remove bad subsidies from the tax code. I don't know about anyone else, but I don't think I have yet to talk to a homeowner or a prospective homeowner who hasn't cited the "huge tax breaks" as a reason for owning. In my case, it made sense to buy because the house was priced very low in relation to rent, even excluding the tax benefits. But many people buying can only justify it because of the "tax savings." If we eliminated this "tax savings," less people would buy, and it would help to speed up the return to normal prices in "bubble-hit" areas like CA.

And in general, if it were eliminated, taxes could be reduced across the board to make up for it. So are you saying that renters aren't deserving of a tax break? Only people stupid enough to pay $500K for a 1000sf shack in California should get a tax break?

Auream said:... I don't know about anyone else, but I don't think I have yet to talk to a homeowner or a prospective homeowner who hasn't cited the "huge tax breaks" as a reason for owning. In my case, it made sense to buy because the house was priced very low in relation to rent, even excluding the tax benefits...
Do you count?

Economists mostly agree that the tax benefit of home ownership is capitalized in the price of the house. Therefore any increase in tax benefits will quickly result in higher prices and any decrease in tax benefits will quickly reduce prices. There is plenty of political support for the former result, and very little for the latter. I don't think a reduction of tax benefits can happen until the real estate market recovers.

Incidentally, the Section 121 exemption of $250k or $500k of gain, enacted in 1997, is an example of an increase in tax benefits for home ownership. It provided much of the fuel for the bubble, as ordinary people bought houses intending to live in them 2 years and then sell them for a big tax-free gain.

Tax benefits most definitely affect home prices.

Auream said:the section 121 exemption should definitely be repealed as well.

I agree that the pre-1997 rules were more fair: tax deferral as long as you buy another house for the same or more money.

I can't agree with taxing people on capital gains for their personal residence to the extent that the average price level for real estate has risen. That's just a tax on government-created inflation, IMHO. It's confiscation of your principal. However, if the house has appreciated more than average (indicating possible addition of sweat equity or a bargain purchase) then paying tax on the excess appreciation would be reasonable.