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The Wall Street Journal reports that a federal commission charged with finding ways to reduce the deficit is considering whether to tinker with popular tax breaks such as the mortgage interest deduction and child tax credits.
All told, experts say tax credits such as those add up to about $1 trillion a year. That makes them an extremely attractive target as the commission considers ways to reduce the hulking deficit. The aim of the deficit commission, a bipartisan committee created by President Obama, is to balance the budget by 2015.
But voters love those tax credits, and they can lead to the type of real savings that make it affordable for a mother to work, a family to have health insurance or a couple to decide whether or not to buy a house.
"These [tax credits] are very popular. They have a big effect on people's lives. You can afford the house instead of not being able to afford it," said Roberton Williams, a senior fellow at the Tax Policy Center, a think tank.
That's why Williams thinks there's virtually no chance House and Senate leaders would consider doing away with mortgage interest deductions completely. Still, he does think there's a chance that lawmakers would be open to modifying those tax breaks to save the government some money.
The current housing and foreclosure crisis, not to mention the fragile economy, means any change to mortgage interest deductions could be risky. It could cause home prices to drop more, and it could make it harder for first-time home buyers to afford a home.
"On the one hand we don't want to do things in the short run that will squelch the economic recovery," Williams said. "At the same time we don't want to tie our hands in ways that will make it harder to get our fiscal house back in order in two or three years."
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If you need a tax break in order to be able to afford a home, then you are financially over your head and shouldn't be buying a house. Same thing with the child tax credit. You already get a deduction for each child, now a tax credit on top of it? And yes I have children. It kinda goes back to the whole affordability thing. If you can't afford it without the tax incentive you should not be doing it at all.
Mike, they are talking about doing away with the tax deduction you get for the interest you pay on your existing homeloan, not a new "tax credt" on top of that deduction. The same thing with the "child tax credit". That's what the deductio is that you already get, a "child tax credt". If they do this they will be eliminating the existing tax deduction you are getting for your children now.
So using your logic, someone who is very responsible, save money, and budgets for a home while making @40k yearly should not buy a home because without the tax break they would feel uncomfortable due to their allready cautious nature?
I suppose since people shouldn't buy things we should just do away with all federal and state tax benefits and let the government spend the money since they allways know whats best:)
Barry's own commission will end up sounding his political death knell in 2012. That which should be the justification of his redistribution plans will be the very medium that best describes to the American people why Barry must be stopped in 2010 and at the end of his single term.
We do not have a "taxes are too low"problem. And as to the deductions and credits, they can only add up to $1 trillion if you include all of the corporate deductions. Just to be clear, reductions of deductions or exemptions without reduction of the tax rates is a TAX INCREASE. We don't have a problem of tax receipts being too low, we have a problem of grossly inflated spending. Will anyone agree to raise taxes by 3.5 trillion dollars, which is the amount of the short term deficit increase as forecast? Then we have the unfunded mandates.
Reduce spending first, then talk to us about mortgage tax deductions.
Mike in GA...by your logic then, we shouldn't be drilling for oil, researching new pharmacuticals or medical devices, planting crops, hiring new workers, investing in new capital equipment, or any one of a bazillion things that help keep the economy going. People like you are VERY short sighted. If someone doesn't buy that house because the mortgage interest is no longer adjustable, then no one builds the house, buys the appliances, and on and on and on. When those deductions were approved, it was after long and careful study that showed it benefited the economy, and therefore all of us, several fold.
Brian...you are right. Let's have everyone buy something they may not be able afford without a tax deduction or credit (ie via subsidies, since that what a tax credit really is) and get into a deeper mess than we already are. But as long as we are selling things that is OK. How is the new investing and hiring going right now with all the credits and deductions? As far as R&D, oil drilling etc, if an idea or industry needs subsidies to survive, then it should not. Are you telling me with the Billions in net profit companies like ExxonMobil and the pharmacuticals are making that they need subsidies (tax credits)? Talk about short sighted, where do we say enough with tax credits/subsidies?
Well, I can afford my house, and I can afford my children. However, I make a budget every year. That includes what I expect to pay in taxes. If the government makes the change effective for the 2011 tax year, no harm done, I can budget appropriately. However, if the changes are effective for 2010, I will be hurting. That would likely mean an additional $5-6K in taxes (plus another $1-2) in state income taxes. I didn't budget for $6-8K in additional income taxes. It doesn't mean that I can't afford my house or kids (in fact, I have the money to pay the additional taxes, since I have saved), but it would make things very tight.
Mortgage and child tax credits? Whiskey Tango Foxtrot, over? Why aren't they talking about making capital gains taxes higher-- like at the same rate that income is taxed for actual labor? Or how about the transactions tax?
Oh, wait, of course-- how silly. Those taxes affect corporations and the wealthy... we can't have that, now, can we? It makes so much more sense to nickel & dime middle-class workers into bankruptcy than it does to make the fat cats actually pay their share. Wake up, America!
Let's start with corporate tax breaks. If people cannot write off non-mortgage intrest, why should businesses?
Tax breaks, if we must use them, should have a valid purpose and advance a particular well-agreed upon goal.
For the long-term health of our economy, we need less debt and more savings, especially savings for retirement.
Well, I can afford my house, and I can afford my children. However, I make a budget every year. That includes what I expect to pay in taxes. If the government makes the change effective for the 2011 tax year, no harm done, I can budget appropriately. However, if the changes are effective for 2010, I will be hurting. That would likely mean an additional $5-6K in taxes (plus another $1-2) in state income taxes. I didn't budget for $6-8K in additional income taxes. It doesn't mean that I can't afford my house or kids (in fact, I have the money to pay the additional taxes, since I have saved), but it would make things very tight.
Thank you. I find it interesting that all of the "solutions" involve removing tax breaks for individuals, but not one word about the enormous tax breaks that corporations get.
I find it interesting that the only solutions mentioned are removing tax breaks for individuals, but not one word about the enormous tax breaks that corporations get.
Not being able to deduct your mortgage interest on your tax return is huge. It's nice being able to deduct thousands of dollars off your taxes. What about all the small investors who have small rental properties. They can deduct their mortgage interest on their properties. If that's taken away then what's the incentive for having rental properties.
I knew this admin. was going to find a way to hit the middle class somehow. I have an idea. Why doesn't the government look at what they can cut within the federal government. Like for instant, take away the pensions of Congressmen. That alone should save millions of dollars. Make them retire on just Social Security like the rest of us.
I don't plan on retiring on just Social Security. We have been saving the maximum allowable for years in TSP, IRAs, etc. My spouse will also have a military retirement after having served 30 years.
You won't need to worry about s/s. With a spouse in the military you have had life time medical, housing allowances and a great retirement. You had a lot of extra money to put away. What about the rest of us, whose companies kept going out of business, whose retirement investments tanked, and who is going to have to pay extra for medical, just to cover governement retirees? It must be nice to know you are taken care for life.
Most of our time has been in the Air National Guard. We have been back on active duty since 9/11. Before 9/11, my spouse worked full time in the civlian world and was in an Air National Guard unit. Traditional guardsmen do not receive much in the way of housing allowances or health care. We provided that through our own employers plans. Currently, we do get housing allowance and medical care - all in exchange for being willing to die for this country. You know, the military is an all volunteer force. And it is even provided for in the US Constitution.
Jo Ann-666954
Totally agree! haven't seen one scumbag in Congress vote "NO' on any automatic payraises. How about cutting their own paychecks to cut the deficit. they caused it with their irresponsible spending.
momlags
Housing allowances are NOT included in military retirement. Neither is medical, I have to pay in Tricare Prime for my family. My retirement is 50% of my base pay for the last three years. Pays enough to cover my car payments, medical and life insurance. And by the way, i earned this while protecting your Constitutional rights for serving twenty years of my life. 75% while away from my family.
Schlizsky: Thank you for your service. I know what you mean about separation. Some people just do not get it.
To add to that comment, I am not complaining. My spouse made this choice and I support it.
We paid more than $39,000 in mortgage interest last year alone. We also paid close to $8000 in property taxes. Both of these items are currently deductible from the federal return. Most middle class homeowners take this deduction, so wouldn't Mr. Obama be lying if these tax incentives were repealed?
Does that shock you that Obama or any other polition would be lying...really???
Even at a very high interest rate your balance is above $500,000 to get that kind of interest. And likely above $700,000. Honestly I would rather lose the deduction for myself and other people to stop people from getting that kind of deduction on homes like that.
We live in the DC metro region where an ordinary 3 bedroom brick front/aluminum siding house on a postage stamp lot costs $700,000.
I just got back from Arlington, Va and stayed in a 1 bedroom, 1 bath bungalow that had just sold for $499,000. Me and my wife couldn't beleive it. Same home in Salem, Or. maybe $100,000 and thats a big maybe.
Still an exaggeration "Go USA." I live within the beltway, no more than 7 miles outside the city, and within a mile of metro and my 3 bdrm/2ba house cost me $291,000. It is a single family home on a 7000 sq. ft lot. The neighborhood is great and the property was not a foreclosure. You have a very nice home for $700,000.
No Rachel isn't. We live in Fairfax. Look up the housing prices in the area. We bought in 2006.
The only place I can think of inside the beltway that would have houses in that price range is Prince Georges County, MD.
I live in Montgomery County...and you bought at the height of the market which definitely skews the value of your property. I bought in 2008.
We just refinanced and the house appraised for more than we paid for it in 2006 - not much more, but at least we are not upside down.
Glad that you are not in the "upside down" situation that many are in. I was just saying that you must have a very nice home for that amount of money since it is possible to have a great home in the metro area for a lot less. Fairfax county has great schools and lots of community living. Montgomery lacks in those areas, but home prices are more reasonable for it.
Truly, our house is an ordinary Colonial. Small lot. We just happened to buy at the height of the market, and thanks to the school district and other amenities in our area, our house has held it's value. When we were looking, people were paying more than $700,000 for knock-downs just to get the lot. I could not even begin to wrap my head around that.
Big difference between interest on investment property on a private house you live in.
The interest on a investment is directly related to the production of new income which increases tax for the government.
In both cases the bank should pay tax on the interest income. By removing the deduction it is in effect double taxing now that it has been in existence for so long. If they do it I doubt the business deduction will be removed, way to many companies borrow money and would go out of business if they had to pay income tax on money they actually gave to a third party.
I suspect they will never directly remove them but they can accomplish the same by letting the alternate minimum tax expire then more people could join the "rich" who do not get to take those deductions.
Cut spending first. American families have had to do it so why can't the American government? Why on earth would we even consider raising taxes to pay for gross inefficiencies and government waste?
We could cut the deficit in a much more efficient/fair manner...get rid of all the golden parachutes that Washington's crooks receive. Let's see...their free health care and retirement package would cut hundreds of millions of dollars from the deficit. I'm sure there are other perks they get as well that should be looked at...but that's for another discussion. If SS and O'bama care are good for the rest of us...it should be good enough for them as well!!!
Until you lower their pay and benefits...there is NO incentive for them do do anything for the American people. Who by the way are supposed to be the ones they are working for! Instead, they are working for themselves, friends, families, business partners, etc....it has truly become a joke and one of these days (real soon) it will cost this great country more than we are prepared to deal with.
I agree! Many politicans are quick to want to cut other people's salaries, but when it comes to their own they suddenly have the urge to make an exemption. Washington needs to start walking the walk, not just talking the talk!
I am sorry but I am a single mom of 3 and I work my butt off everyday and attend school trying to better life for me and my children. I really depend on the child tax credit I dont have credit card debt or car payments and I don't live outside of our means.. But we are considered low class as far as income. There is a lot of other things that can be done to save money. I have a neighbor that works for the government he makes 42.00 an hr. and told me he sleeps most of the day or goes swimming. When he is not testing the way our bombs are going to blow up. Really I want that job... You can't say what is right for people until you have walked awhile in their shoes... We spent all this bailout money on companies that got there ownselves in trouble it should have gone to help the peoples lives they ruined and helped them save there houses. Then the government would be getting paid back with interest. And the Automotive Industry really they have sold enough cars and trucks and been in business long enough they should not have needed help from the government. There is a lot of people that need it more like our Schools....
It is telling that the Obama administration's primary focus is figuring out ways to take more of our money rather than cutting spending. There would be no need to remove the interest tax breaks if the government was able to live within it's means.
I love the statement "....... will save the government some money" How much tax will ever be enough? The answer is clear, government has no limits and is only bound by our tolerance to accept ever increasing government. My hope for change is not that americans buy into government promises that always result in less freedoms and more confiscation of our hard work. Vote out all incumbents and support whichever candidate vows to support holding the line on government and defending your freedoms.
Roland
P.S.: I've spent a career trying to make a difference in the govenment system cleaning up our environment. The self-serving politics, waste, fraud, and abuse of your tax dollars systemic in all government agencies I've ever work with makes a lifetime of hard work completely pointless. I would have contributed more to society dealing drugs or pimping teen age girls.
I am all for raising taxes a bit to help reduce the deficit, but the housing market is clearly not the best place to do that right now. Call me a socialist if you like, but I am of the belief that those who have the means should kick some back for the greater good of the society.
Why are you for raising taxes. Take a look at history and you will see that by lowering the tax rate you could actually increase tax income for the country. More importantly, "kicking back some for the good of society" isn't the debated issue. Perhaps you should look at the percentages of charitable giving by those identifying themselves as conservative vs liberal. I think you will be shocked that your good hearted liberals actually don't give nearly as much, that is unless they have first taken it from others via taxes.
The fact is that the government taking money from some and giving it to others via food stamps, healthcare, welfare, and other programs is unconstitutional. Money can do more good in the private sector if it is donated to a non-profit or even spent which creates jobs. When money is confiscated by the gov't it goes to pay inflated salaries of those who administrate the giving. Those salaries are not in line with the education, responsibilities or work ethic of those individuals. Let people keep their money, reduce the gov't and I promise you we will return to the prosperity of the past.
pxw23...actually this has been disproved time and time again. When we have had tax decreases, the GDP has gone down as well as the tax revenue. When taxes have gone up, GDP has gone up, as well as an increase in tax revenue. This has been the trend since Carter was in office.
OK, so we can take away the mortgage deduction from middle class folks who are already struggling, but we can't ask the filthy rich to pay even a little more in income tax? I don't get it.
Dubsie...I am in the middle of the middle class, and while I like to bash on the rich myself every now and then, how about we ask the 50% of people who end up NOT paying anything, and in alot of cases getting a refund when their tax liability is 0 to chip in. How about a tax of $50 a month and eliminating refunds above and beyond your tax liability. If you have a tax liability of 0 then you should not be getting a check for 1000. Everyone should share in the tax burden no matter how small the amount.
I just don't get it. Higher taxes have NEVER paid down a deficit. It cripples the economy, we end up printing more money just to falsely get by.
Grow the economy, STOP spending money we don't have. Gee, what a concept.
The top 2% is why we have this article, to make the tax cuts for the top 2% be masked by silly articles like this.
Do away with the earned income credit and save millions.. I have said it again and again, people who can work and get a refund of all they paid in then get earned income credit up to 10000 -- need to be cut off.. I pay taxes and have never qualified for earned income because I made too much and only had one child.. I know people who pay in 1000 and get back 8000 or more every year... Cut out the EIC and the deficit will automatically go down!
momlags....Believe me, we are not taken care of for life. My husband served 22 years in the Navy as an enlisted man. We have medical, but we still have office co pays, we still pay for prescriptions (although I must admit a very low price) and his retirement each month is only half of what his base pay was. As for housing allowances, if you live in military housing, your paycheck is less, so forget about putting that "extra" money aside. I'm sure retired officers have it much better, and yes, we do have better medical benefits than most, but don't paint the picture that retired military and their families have it made.
We need to cut 250 billion from the budget just to fund all but the interest on our 13 trillion national debt, which is about 500billion per year. So 750BB in spending cuts or tax increases just to break even.. Then we must deal with entitlement spending which is an even bigger long term problem.
No politician should get a free pass on opposing cuts.. The math is certain.. If they oppose cuts to defense, for example, then they must be forced to specify cuts in other areas that equal to that which they want to keep. The same goes for tax expenditures. Keeping the mortgage interest deduction will require specific cuts in other areas of the budget equal to what eliminating the deduction would have saved.
I would for these tax reductions, if the goverment would also remove the tax dedutions from businees, such as corporate jets, business lunches. I stiil believe a flat tax for everyone is the best way to handle this
I would be for these tax credit reductions, if the goverment also removed the tax credits for business such as corporate jets, business lunches, corporate retreats etc. I still believe that a flat tax rate without any deductions is the best way to make the taxes fair for everyone
NO tax cuts for any Corporations outsourcing and by that I mean no longer allow them to hide profits made overseas. Let the tax breaks for the top 2% go until the country is in better shape. IF they want to continue to outsource, fine but their tax cuts and loopholes would disappear, remember that even if you move overseas, you still pay taxes.
Once again they want to cut the legs of the working Americans off to save the FAT HEADS.
I agree with CT Papa. The government needs to cut spending and staff. That will help balance the budget. NOT more taxing.