Don't screw with middle-class mortgage deduction

In many ways, I am just like the most common of men – not all that bright about several issues that others master through osmosis. Economics/finance is one such area. I know so little about how the stock market works, it is pitiful. I know more about women’s apparel (and that ain’t saying much).
I was (and still am) a horrible businessman; my past practices prove exactly that. It was far from my area of domain.
But I know this: When government officials or panels stop jacking with things like the U.S. Tax Code, the common guy like me is going to get screwed, blued and tattooed.
That is exactly how I view Tuesday’s recommendations by the president’s tax-reform advisory panel to the Treasury Department. Their ideas spell disaster for millions of middle-class workers and retirees and hard-working families.
It’s one of those warning signals you often hear, like “The check is in the mail,” or “I’ll be right there to help you, honey.” You know it’s not a happening thing.
Tax simplification doesn’t make things simpler; it will make things harder on the pocketbook and is merely one step closer to the vaunted flat tax that some conservatives see as the panacea to all ills.
While elimination of the alternative minimum tax might be a good thing, the gutting of the home mortgage deduction is NOT. Since the panel is seeking to replace $1.3 trillion over the next 10 years, somebody is going to have to pay that piper.
The panel is recommending lowering the mortgage interest cap (the amount of a loan that home owners would receive a tax break for interest paid) from $1 million to the average regional housing price in the range of $227,000 to $412,000. In Texas, that price equals a nicer than normal home compared to other states.
The deduction would change to a credit, equaling 15 percent of interest paid on mortgages up to the interest cap. A credit is a dollar-for-dollar reduction of the taxes you owe, while a deduction only reduces your taxable income by a percentage equal to your top tax rate.
Let’s admit this: Deductions help high-income taxpayers the most and only affect those taxpayers who itemize on their federal tax returns. The higher your mortgage loan, the higher your tax bracket.
But for many middle-income families, this deduction (not credit) is the backbone of their tax return. And there is no talk of grandfathering this change into the system. You don’t change rules in the middle of the game.
More changes that would adversely affect middle class people include disallowing deductions for state and local taxes paid on wage income, investment income and property; and capping the amount of tax-free money that may be used to pay for health insurance to $5,000 for single coverage or $11,500 for family coverage.
The panel also proposes creating two new credits - one for family, to replace the standard deduction, the personal exemption, the child tax credit and the head of household filing status and tax bracket; and one for work - to consolidate the earned income tax credit and refundable child tax credit.
In a complicated world, with families coming in all sorts of configurations, simplifications such as this seem too … simple! Frankly, the trust factor in Washington, and with this administration, is nil.
The tax code is far too involved to reduce to a simple 4x6 index card, as proposed. The threat is throwing out all these middle-class babies with the bathwater and thinking you’ve accomplished something.
All that is going to happen is to hurt MORE people who don’t need additional pain in their lives.