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‚ÄčTax Loopholes & Rending of Garments in Park Slope

There is a great deal of gnashing of teeth, wailing of tongues, and rending of silk garments. People are feeling Blue with a capital B in places like New York and California, and parts of New Jersey. Especially in neighborhoods in NYC, San Francisco, Silicon Valley, and the like. Why all the despair?

It appears that the GOP is actually serious about closing some cherished loopholes that tend to benefit the relatively wealthy in high-tax and expensive real estate areas of the country. As in capping the deduction for interest on home mortgages at a total loan value of $500,000, a trifling sum in those neighborhoods that will barely get you a tiny two bedroom in most cases.

So please, say with me:

Awwwwwwww!! Sorry!

How dare they take away your subsidies?! How dare an upper middle class household earning six figures not have the deduction on more than a $500,000 mortgage? Let's delve into the carnage, shall we? Say that double six-figure income household has a $750,000 mortgage on their two and a half bedroom house in Park Slope Brooklyn. Yes, that means they had to put down maybe $500,000 in cash (the home was a steal at say 1.25 million) which they happened to have in one of their investment accounts after selling some stock. That means that now $250,000 of their loan will not be interest-deductible, so to speak.

Say their mortgage rate is 4.15 %. That means that around $865 in monthly interest payments will no longer be tax deductible. That certainly adds up to a lot of latte's and take out from Angie's Deli, but somehow you feel this aggrieved, enraged couple will struggle on and survive without a subsidy courtesy of other hard working tax payers in places like Kansas or Texas. Ditto for their local and state tax deductions, although that will add up to a bit more, even if they will have a $10,000 deduction limit on what one would assume to be the rather steep property taxes that are levied in places like Park Slope.

You will hear a lot of criticism of this tax reform as being somehow an attack on Blue State voters. What it really is is a modest rebalancing of the fiscal burden voters have endured for more than a few decades. It is a reasonable tax plan overall, which means it will be criticized by various groups, including the housing industry and the mortgage industry. But overall this is a good plan. It could cut taxes a little more for top income earners which it does not (at least not their income tax rates) but there's this little matter of 20 trillion and counting of debt that the USA owes its creditors. So all in all, well done Paul Ryan.

Can this bill now make it to the president's desk in time for Christmas if not Thanksgiving? Again, this will depend on the Senate. And that means that although it is jobs oriented and balanced, this tax reform may also die within the arcane rules of the upper chamber. Let's hope not.

Posted by AllardK at November 7, 2017 6:22 PM
Comment #421310

Good analysis Allard. There is no sound reason why taxpayers in states with no, or low, state income taxes should give aid and comfort to those who choose to live in high state income tax states. Voters in high income tax rate states can remedy this, if they wish, at the polling place.

The income tax deduction for home mortgage interest was designed to help first time home owners and those of modest income. Home ownership should be encouraged as it benefits a majority of Americans. I see no need to subsidize the high income wage earner or wealthy.

President Trump has stated that he wants tax reform that will primarily benefit the working middle class and to help American corporations be more competitive with other countries.

I agree.

Posted by: Royal Flush at November 7, 2017 6:42 PM
Comment #421311

We will view this as a reasonable course of action as it is introduced. What will become of it during the process? What will be added for votes, or taken away to save the selected few from their constituent’s anger?
We owe it to ourselves to follow this procedure closely.

Posted by: Weary Willie at November 7, 2017 10:52 PM
Comment #421334

These people are the Republican party’s base in those states. Can Republicans win 218 congressional races without the support of these affluent voters? Five or so Congressmen from New Jersey are about to find out.

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Comment #422488

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