Monday, August 14, 2017

Why tax 'reform' is near impossible


Since the beginnings of this country, taxes have been necessary and unwelcome. From the time the first one was imposed to the current day additions, subtractions, exemptions, deductions and all manner of alterations have been made to the tax code. It is huge, complex, provides employment to a substantial sector of the population and is so full of so many favorite oxen that any attempt to change it will gore more than a few.
With U.S. Congress members focused during their August recess on finding ways to lower the corporate tax rate, industry groups and other sectors of society are gearing up to fight proposed changes to the personal income tax.

While tax cuts for business have garnered the most headlines, lobbyists and lawmakers have conceded that rewriting the corporate tax code will be a long slog.

Tackling personal tax rates will be easier, many argue. Looking for an easier legislative win ahead of the 2018 midterm elections, most lawmakers in the Republican majority want to cut individual incomes taxes. President Donald Trump has been pushing hard for tax changes this year.

Still, proposed changes to the personal tax code have already stirred opposition from realtors, home builders, mortgage lenders and charities. These groups say proposed changes will hurt home sales and cut charitable contributions.

The National Association of Realtors issued an "August Recess Talking Points" circular imploring members to remind lawmakers that "Homeowners must be treated fairly in tax reform" to avoid "another housing crash."

The group cited a report it commissioned from PwC that estimated home values could quickly dive more than 10 percent if the tax plan becomes law.

To simplify the tax code, Republicans have proposed eliminating nearly all tax write-offs including those for state and local taxes, then doubling the standard deduction. This would eliminate the incentive to itemize and should drastically reduce the number of taxpayers who do so.

Currently, many taxpayers use itemized deductions, claiming write-offs for things like charitable contributions, interest paid on a mortgage and state and local taxes. If the standard deduction becomes larger, fewer taxpayers will need to itemize, reducing the incentive to hold a mortgage or contribute to charity.

Currently, about 30 million taxpayers claim the mortgage interest deduction, with about $70 billion in total claims, according to Robert Dietz, an economist with the National Association of Homebuilders.

Estimates suggest more than half of taxpayers would stop itemizing under the proposed plan, Dietz said, warning that this would create a large ripple effect through the economy. He said people in early years of a mortgage would suffer most, along with prospective home buyers.

Home builders are also fighting the proposed tax code changes.

"I don’t think I would call that a cakewalk," said Jerry Howard, the head of the National Home Builders Association, saying the proposal will face fierce resistance from his group, which represents 130,000 builders. He noted that members operate in every congressional district and employ more than 7 million people.

Charitable organizations are not arguing against increasing the standard deduction. But they are asking members of Congress to consider creating a “universal deduction,” so taxpayers taking the standard deduction can get additional credit for donations without itemizing.

Taxpayers claim an estimated $13 billion each year in charitable deductions. Charities fear giving would plummet if the standard deduction were doubled without creating a universal deduction.
And these are just three groups who are protecting their turf. There are more lobbying to keep their particular favor and in this battle it is not the best idea that will win but the best financed and the Members of Congress are looking forward to the debate.

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