Wednesday, October 12, 2005
Will Bush tick me off again? (Or the many moods of Jody Neel)
Today, via Boortz, but then at Marginal Revolution and lots of other places, I read this:
President Bush's tax advisory commission indicated on Tuesday that it would not propose replacing the income tax with a national sales tax or a value-added tax, but would recommend limits in the popular tax deductions for mortgage interest and employer-provided health insurance.So my preferred tax reform appears to be ruled out (as well as my third in order of preference - the VAT, my second - a flat tax - may still be on the table), so I'm disappointed.
Expanding on the mortage interest aspect of the proposal (I would prefer that employers not provide health insurance - it limits labor mobility and implicitly is a suboptimal allocation of resources for just about everyone involved - so I'm not that concerned about making it a less attractive option):
The average new house price in the US as of February of this year was: $282,100. In places like California, DC and NYC, it's much much higher. So this will affect a large percentage of the housing market.
For mortgage loans up to $1 million, taxpayers can now deduct all the interest. One proposal discussed on Tuesday would cap the deduction at the maximum mortgage the Federal Housing Administration will insure.
That level changes each year and varies depending on housing costs in each county, with a maximum loan limit now of $312,895 in communities where housing is most expensive and a national average of $244,000, according to the housing administration.
Now up to this point, I had been of the opinion that even if we were in a housing bubble, it would deflate slowly so there wouldn't be any negative macroeconomic effects of a dramatic scale. Of course, my logic assumed that I wasn't overlooking some significant external factor, like a new continent surfacing or a demand shock caused by the sudden elimination of all interest deductions. So even assuming the reform manages to be nominally revenue neutral, unless this is phased in very carefully, I think this could be a significant problem.
So the proposal presents the possibility of popping a bubble that I'm not certain exists (or more accurately, that I'm fairly certain is not a nationwide problem). But if the bubble does exist, this could have catastrophic effects for the economy which puts me in an anxious mood.
Then Dale notices this little gem:
If you think it's bad enough that the Internal Revenue Service collects your hard-earned tax dollars, imagine if an IRS agent prepared your income-tax returns, too.And this would really piss me off. (That's mood #3 for those of you keeping score at home.)
No, we're not joking.
The concept, called "Return-Free" - where the IRS automatically prepares income-tax returns of those taxpayers with the simplest returns and then sends taxpayers the bill - is being considered by the President's Advisory Panel on Federal Tax Reform.
One of several Republicans who opposes the concept calls it "flawed" and "dangerous to taxpayers."
It "creates a conflict of interest by making the tax collector the tax preparer," Republican Study Committee Chairman Rep. Mike Pence of Indiana warns in a letter sent to the chairman of the tax reform panel, Rep. Connie Mack, Florida Republican.
In addition, what are the chances that taxpayers will trust the IRS to find them the most deductions and biggest refund? (Whatever you do, don't try claiming your new sailboat as a business expense.)
"(M)any taxpayers will still have to take the time to prepare their taxes in order to verify (what) the IRS sent them," Pence predicts.
And believe it or not, under the proposal, the individual taxpayer - not the IRS - still will be personally liable for mistakes.
However, Bush has not yet commented on these tax reform proposals and he may yet repudiate them so I may remain a happy camper.
Then on the plus side of the ledger (well at least my ledger, I imagine some readers might score this one differently), there's currently a news flash on Drudge (i.e., I can't link it) saying that the Amtrak board of directors has approved a privatization plan put forward by Bush. Of course, this would have nowhere near as big of an impact as the proposed tax reforms, but it is something I thought should be done for some time now.
So in the event that all of this comes to pass, maybe I'll just end up with a smrown or a frile on my face, but definitely more frown than smile.