I'd like to thank Mr. Frank for responding to this thread.
My accounting background is not comparable to his; all I know
about the tax code is what I learned from doing my own 1040s.
That having been said:
>As a CPA I would like to comment on the discussions. Since
>Mr. Trainor is a GOP candidate I think it is relevant to
>Minneapolis voters that they get the accurate facts with
>which to make their decisions and that their elected
>(potentially) officials are held to a high degree of accuracy
>in their statements.
I agree completely. Will you be doing this for my
DFL and (presumably) Green opponents as well? :)
>>>"This federal housing subsidy provides the most benefits to
>>>the most well-to-do homeowners (there is an upper limit)
>>>who have the most expensive homes (or two).
>>I disagree completely, unless you're of the opinion that an
>>annual salary of $33K is where "well-to-do" homeowners'
>>incomes start. Both my mother, a retired homemaker living on
>>her late husband's pension, and myself, a lower-echelon
>>salaryman for a local bank, benefit greatly from being able
>>to deduct our mortgage interest from our Federal (and, by
>>extension, state) income when tax time rolls around.
>The home mortgage deduction absolutely does provide more
>benefit (in terms of actual dollars) to people of greater
>income levels. For example holding the mortgage interest
>amount equal, a person in the 34% bracket receives a more
>valuable deduction than a person in the 15% bracket. This is
>due to the simple mechanics of the tax rate system. This
>does not mean that people of more modest income levels don't
>benefit, just that they don't receive the same amount of
>benefit as their wealthier counterparts.
Given the effect of bracket creep on the alternative
minimum tax, though, would the homeowner in the 34% bracket
necessarily be able to take advantage of the whole deduction?
Also, is the benefit larger only in dollar terms or is it a
larger percentage benefit?
>>By the way, a tax credit is not the same as a subsidy. The
>>credit allows you to keep more of your own money. The
>>subsidy reaches into somebody else's pocket and gives you
>>their money. Big difference.
>A tax DEDUCTION is also very different from a tax CREDIT. I
>assume you meant the home mortgage interest DEDUCTION rather
>than credit (since there is none) - However, both Deductions
>and Credits are a form of subsidization. They are
>essentially direct payments from the government to >individuals and corporations that
>enter into certain economic
>activities.
I'm sorry, but I can't accept your definition
of "subsidy" here. I agree that deductions and credits are different (and should have
been accurate in referring to the
mortgage interest deduction as a deduction, not a credit) but
neither one is a subsidy! My Merriam-Webster does not define
either word as being synonymous with subsidy, and to regard
them as the same is to engage in the same sort of political
word-mangling that leads to politicians raving about having to
pay for tax cuts.
<snip>
>The renter will pay $8,327 in federal tax and $2,691 for a
>total of $11,016
>The homeowner will pay $5,467 in federal tax and $2,106 for
>a total of $7,573
>I would be glad to provide my calculations to anyone who
>asks.
>That is a difference of $3,443 that the homeowner gets that
>the renter doesn't. Everything else about these two people
>is exactly the same. To say that this isn't a subsidy is
>absurd. After all, we could just have both of these people
>pay the same tax (a fair system) and then have a Federal
>Housing Administration write a check to the homeowner for
>the $3,000 or so) Then it would qualify as a subsidy under
>your definition. Either way the economics of the situation
>haven't changed.
I agree that they end up with different tax bills, but
since we are discussing economics in the context of politics
things are not nearly that simple. The IRS does not in fact
collect the same tax from the renter and the homeowner (because
of the mortgage interest deduction) and the money is not
returned to the hopmeowner through the FHA. If the homeowner
has been careful with his W-4, he gets to keep his money all
year without having to lend it interest-free to Washington.
It is not absurd to insist that words mean what they mean -
there is a very real difference between subsidies and tax
credits/deductions, quite aside from where one enters them
on the Form 1040 and/or Schedule A.
>I would argue that the rule itself has a good purpose and
>works to promote homeownership through debt-financing but it
>is clearly a subsidy even if indirectly.
Does this also mean that the personal exemption is a
subsidy?
>>>This subsidy is many many times the amount provided
>>>for all types of federal housing assistance for low and
>>>moderate income people. (Sorry I don't have time to look up >>>the numbers) .
>This is quite true the subsidy/deduction results in $95
>billion dollars a year (Lazare "Undeclared War" 2001) of
>federal tax dollars not collected from homeowners that would
>be collected from their renting counterparts as in my above
>example.
Taxes are not a zero-sum game in which the reductions
given to A must be made up by increases levied on B, which
seems to be what you are implying here.
>>You'll have to excuse me if I don't accept you at your word,
>>then, especially since you don't seem to be able to
>>distinguish between a subsidy and a tax credit.
>Again this is NOT a Tax Credit we are discussing. Please try
>to make the correct distinction in the future.
Right. It's a deduction, not a credit.
>>>Homeownership has many positive impacts upon the community,
>>>but owners build equity and get appreciation - PLUS a big
>>>subsidy from renters and all taxpayers.
>>You make it sound like I (and my fellow homeowners) are
>>walking around Phillips waving our property deeds under the
>>noses of our poor neighbors who rent, demanding that they
>>fork out their hard-earned dollars, which is just plain
>>silly. People buy houses for many reasons, but reaping the
>>huge rewards of the tax breaks </sarcasm> isn't one of them
>>unless they're unable to do the simple math required to fill
>>out a 1040 long form. In my case, I bought a house for my
>>family because renting a two-bedroom apartment in the
>>early 1980s was a lot more expensive than buying a house,
>>and offered no prospect of a return on equity.
>If people buy houses for other reasons then, we should do
>away with giving them an additional economic incentive.
We do this already. You can only claimm the state
homestead credit on one house, and if you can take the
mortgage interest deduction for a vacation home - well,
neither I nor anybody I know is wealthy enough to own one
of those, so I wouldn't know. I'd be against it if that were
the case. However, eliminiting the mortgage interest deduction
because people buy them mainly to live in and not as investment
vehicles makes no sense to me. Or is that not what you meant?
>However, the tax implications do
>factor into people's decision making, this is part of why it >may be cheaper to own.
I am convinced that after factoring in the cost of
utilities, repairs, preventive maintenance, etc., the mortgage
interest deduction no more advantages the homeowner than the
exemptions for children give an advantage to parents. I
haven't run the numbers on this, and I do live in a 19th
century house...YMMV.
>Additionally, under the current law, you don't pay tax on any
>gain on the sale of your house so long as your gain is below
>$250,000 and a few other simple requirements are met. If I
>invest in pretty much anything else and I have gain, I pay
>taxes. Again this is a subsidy to homeowners. Had a
>person invested in stock and had the same financial gain,
>he/she would pay far more tax than the person who bought a
>home.
It's a tax advantage in that it allows you to keep your
own money, but not a subsidy. A recent addition to the tax
code, I should point out, enacted for the benefit of retirees
who didn't have much else in the way of investments besides
their homes.
>>If you want to talk about subsidies, you should take a
>>closer look at the Property Tax Refund program here in
>>Minnesota. Apartment dwellers pay the property taxes at the
>>commercial rate through their rents, but get the taxes
>>rebated to them at the homestead rate - adjusted for income,
>>so that it is possible to recover more than you paid in.
>A reason this system exists is because homeowners also get to
>deduct their real estate taxes (in addition to their mortgage
>interest) and therefore pay a lower effective tax rate than
>renters. Also the dollar numbers don't even compare to the
>federal deductions.
Which is beside the point. The CRP is an income transfer
program, not a tax deduction. No matter how many deductions
and credits you may be able to take advantage of, you will
never get the Feds to cough up more money than they took in the
first place, unless you're a member of the working poor who
can take advatage opf the earned income credit.
Look, I have nothing against renters, and don't begrudge
them the CRP. I do have a problem with people playing the
politics of class envy by complaining about the tax preferences
given to homeowners and how they seem to benefit the wealthy
more than the middle class, and the middle class more than
the poor. This is not a country where you are fixed in one
economic class for life: you can be born poor, work your
way into the middle class, and retire wealthy. Happens all the
time, as does the reverse: the papers are full of rich kids
who have wasted Daddy's millions (or Grandpa/Grandma's) because
they lacked a work ethic. Social mobility happens, and to
pretend it doesn't is to walk around with blinders on.
Kevin Trainor
GOP Candidate, HD 61A
East Phillips
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