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TMFMmbop (34.29)

Dear Mr. President,

Recs

15

February 01, 2010 – Comments (47)

Your budget sucks, but at least you got it snappily shrink-wrapped.

In addition to a litany of tax increases on the "wealthy" (and no, I don't considered a married couple each making $125 per year in a place like NY, San Fran, or DC to be that ), we've got a proposal to phase out the mortgage interest deduction. Awesome. Let's further bilk overstretched recent homeowners who are paying their mortgages on time. That will have no ramifications in the economy.

My only hope is that this is your classic legislative bargaining chip and will be removed during the "process."

47 Comments – Post Your Own

#1) On February 01, 2010 at 1:40 PM, goalie37 (90.55) wrote:

When the government spends our money like drunken sailors, we get nothing.  When I spend my money like a drunken sailor, at least I have a great time.

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#2) On February 01, 2010 at 1:45 PM, outoffocus (22.80) wrote:

THANK YOU THANK YOU THANK YOU!! I've stated numerous times before that the mortgage interest deduction would be the next to go.  Its not about milking overstretched homeowners (debtors), its about milking the middle class who, by default, has the most to give while have the least influence with politicians. I am not surprised at all and TBQH, good riddens.  Now house prices can finally come down to sanity.

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#3) On February 01, 2010 at 1:51 PM, TMFHousel (93.11) wrote:

To play devil's advocate, I think it's a stretch to say eliminating an interest deduction qualifies as "bilking." There's a clear difference between a tax and the elimination of a subsidy. 

On a similar note, here's what New Yorker columist James Surowiecki writes, "Advocates of the mortgage-interest deduction ... claim that it increases homeownership rates. But it doesn't: in countries where mortgage deductions have been eliminated, homeownership rates haven't dropped. Instead, the deduction simply inflates house prices."

Just a thought,

Morgan  

 

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#4) On February 01, 2010 at 1:55 PM, brickcityman (< 20) wrote:

Shameless self promotion.  Even in sections that have been kept in line or raised there are serious issues!

 

As for the mortgage interest tax deduction,  I enjoy getting it but its an example of one of many unfair and ill thought out elements of our tax code.  Above all else we need to step back and determine a rationale approach to taxation and remake things in that model.  Chances of that happening?  Lets just say we have a better chance of landing a man on the moon by 2020.

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#5) On February 01, 2010 at 1:58 PM, davejh23 (< 20) wrote:

"Now house prices can finally come down to sanity."

I don't know if this is the catalyst that will drive home prices down further.  A sharp rise in mortgage rates could easily drive home prices down another 30%+...below the cost of construction for many areas...a point where new construction will stop completely.  However, Congress will try to throw more money at the "problem"..."Why aren't lenders willing to reduce mortgage balances by $200K?...we're offering them a few thousand dollars!"..."Maybe we haven't given the big banks enough money...lets give 'em a printing press!"

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#6) On February 01, 2010 at 1:59 PM, russiangambit (29.16) wrote:

Giving tax deductions on debt only promotes more debt and more irresponsible borrowing. Who would've thought? Yes, interest tax deduction should go. Renters shouldn't be penalized for being prudent when they cannot afford a house.

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#7) On February 01, 2010 at 2:03 PM, TMFMmbop (34.29) wrote:

If we were starting the tax code from scratch today, I would not advocate a mortgage interest deduction. That said, it has been institutionalized. Given that mortgages are written over a 30-year time frame, by taking away the deducation, the math changes.

If mortgages today no longer qualify for the deduction fine, but existing mortgages should be grandfathered in. Whenever a government acts to change the rules of the game, as it would do in this case, you will have significant negative consequences.

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#8) On February 01, 2010 at 2:09 PM, brickcityman (< 20) wrote:

@ TMFMmbop

 

I wholeheartedly disagree.  The only way taxation should be taken into account when planning to buy a home is to account for property taxes.  If getting a federal tax break factors into your decision to take out a mortgage then you should not be taking out that mortgage, because it means you are relying on something to help make ends meet that is not really income.

 

When it comes to taxation the big item that keeps home prices sky high are ludicrous taxation laws like that which California has.  Sure home prices are free to go into the stratosphere when the taxes assessed on their "value" are essentially capped.

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#9) On February 01, 2010 at 2:19 PM, TMFMmbop (34.29) wrote:

If getting a federal tax break factors into your decision to take out a mortgage then you should not be taking out that mortgage,

What if there was a penalty for taking out a mortgage? Would that factor into your decision?

Of course it would. Similarly, one should of course compare after-tax returns when it comes to deciding whether to buy equities, dividend-paying equities, junk bonds, or municipal bonds and where to hold them. This is why one should always factor extraneous factors such as taxes and transaction costs into any financial decision. It's not to say it's the ONLY factor, but it is A factor

At the end of the day, it's not a question of affordability. Rather, it's that by changing the rules and showing a willingness to change the rules, the government undermines the climate for financial commitment in any asset class. Why would anyone make a long-term capital commitment under a regime like this? It would be stupid to. And that will have serious ramifications.

Tim

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#10) On February 01, 2010 at 2:24 PM, BMFPitt (74.53) wrote:

Wait, is it actually in there somewhere that they're planning to get rid of the mortgage interest deduction?  That sounds way too logical and responsible to be true.

Not to mention way out of character for someone who is at best willfully ignoring the fact that the government is guaranteeing loans to anyone with a pulse in order to try to reinflate the bubble at the expense of everyone but the real estate industry.

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#11) On February 01, 2010 at 2:26 PM, RagingBull0 (52.61) wrote:

If it was up to me, I would simpliy the tax system by lowering all tax brackets and doing away with most of the deductions.  The tax system should not be used as a tool for social engineering, but to collect revenues for funding existing government obligations.

The current system is a mess.  Just look at many of the items on the 1040 form - most of them are subsidies in one form or another.

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#12) On February 01, 2010 at 2:28 PM, eddietheinvestor (< 20) wrote:

I think that removing the mortgage deduction is a huge mistake just after the housing bubble has burst.  With inflation soon to rise because of the huge federal debt, this is the worst possible time to remove the deduction.

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#13) On February 01, 2010 at 2:34 PM, TMFHousel (93.11) wrote:

"With inflation soon to rise because of the huge federal debt, this is the worst possible time to remove the deduction."

Sooooo you're worried about "the huge federal debt" leading to inflation. Fine. But measures that will a) raise  revenue in an attempt to decrease deficits, and b) deflate housing prices (the opposite of inflation) by removing an unfair subsidy are, in your words, "a huge mistake?" Or is it that you just hate Obama? 

 

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#14) On February 01, 2010 at 2:36 PM, weg915 (< 20) wrote:

When it comes to taxation the big item that keeps home prices sky high are ludicrous taxation laws like that which California has.  Sure home prices are free to go into the stratosphere when the taxes assessed on their "value" are essentially capped.

 

I disagree.  Taxes are not capped - when a house is sold it is taxed at it's new sale price.  Prices did not go sky high in ca due to prop 13 - there were many other reasons.

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#15) On February 01, 2010 at 2:40 PM, brickcityman (< 20) wrote:

@ TMFMmbop....

 

Ahhh so this is where we disagree...  You appear to have bought the NAR line or reasoning that a home is an "investment".  And in so doing have applied a whole litany of considerations into that equation that would not have applied all that long ago

 

Considering homes "investments" only became fashionable when their prices reached points that made hard to justify any other way. And its precisely this convergance of emotional and financial considerations that has given birth to the problems we see today.

 

For those of us who still see houses as primarily shelter, but shelter in which you have an ever growing degree of ownership these considerations do not carry nearly as much weight. Many people, myself included, do not necessarily expect that the value of our homes will grow (in dollar or real terms), instead we want to own shelter which we can exert more control over. 

 

Much like automobiles the option to buy or lease is not so much an "investment" decision but rather one that is grounded in your particular personal needs.

 

Only when they start selling Martha Stewart color coordinate frames for stock and bond certificates will I start to consider a home an investment.  Until then its just a shelter that I am one day hoping to own outright instead of pissing my money away listening to my neighbors TV.

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#16) On February 01, 2010 at 2:44 PM, brickcityman (< 20) wrote:

@ weg915....

 

Somebody forgot to tell the banks about that when they allowed people to take out HELOCs against that book value....

 

Also I may be mistaken, but I thought that there were certain ways to purchase homes in CA whereby the tax would not be re-adjusted.  Or the re-adjustment itself was also capped?  Obviously I did not own propertly during my stint living there, I just looked at the madness around me and realized I need to get out before it all came to an abrupt end.

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#17) On February 01, 2010 at 2:56 PM, sleepingnuke (< 20) wrote:

I agree with if it's in place it should be grandfathered in. The government is obviously just looking for some quick ways to make a buck. This is evidenced by the IRA/RIRA conversion opportunity this year. What happens when they decide to change the rules of the RIRA after they milk as much out of the rollover chance as possible. Should the government just be able to change the laws that people count on for stability their entire life? Of course this will cause negative implications.

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#18) On February 01, 2010 at 2:59 PM, BMFPitt (74.53) wrote:

weg915 -

If you could pay $1000/year in property taxes forever at your current house, or $12000/year at a new house, woudn't the price at which you would sell your current house rise significantly?

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#19) On February 01, 2010 at 3:07 PM, TMFMmbop (34.29) wrote:

@brickcityman

I don't consider a home an investment, or at least one that will exceed it cost of capital by any degree. That said, it is certainly an asset. And if you're going to let the government willy-nilly change their policies to denigrate your private assets, you might as well let them nationalize it and leave your needs for food, shelter, healthcare, education etc. in their hands.

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#20) On February 01, 2010 at 3:17 PM, brickcityman (< 20) wrote:

Where does this whole notion of being "grandfathered in" come from?

 

My income tax is not grandfathered in...  My sales tax is not grandfathered in...  My capital gains tax is not grandfathered in...

 

Taxation is and should be responsive to the needs of government.  If you disagree with a given tax rate that's fine, perhaps you will choose more wisely when it comes to elected officials in the future.  But above all else taxation is by its very nature constantly in flux (albeit, it often seems unidirectional).

 

If anything the only winners here are the politicians... while we nitpick whose favorite tax deduction lives and whose dies they continue to not be held accountable for how government is run and are not called upon to do anything substantive with respect to taxation in general.  I believe we need to first seriously evaluate what model of taxation is the most appropriate (commerce, income, stale money, etc) and then work towards that as an overarching goal.

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#21) On February 01, 2010 at 3:27 PM, weg915 (< 20) wrote:

No, and I could get a lot more for my home than I paid - I am one of the lucky ones as I bought in 98.  Just the thought of higher taxes encourages me to stay in my current home long term - creating a more stable, invested neighborhood.  Over the last 10 years my neighborhood has slowly turned over as older people died or moved away.  My immediate neighbor is paying taxes based on his purchase price in 1958 (1/7 of my tax bill) - that's ok with me.  it is afordable and allows him to stay in his home.

 

It was easy money and bank greed which fueled prices.  Nobody forgot to tell them with HELOC's, they just choose to ignore.  Maybe somebody knows different but I believe prices are always based on the sale price.      

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#22) On February 01, 2010 at 3:30 PM, weg915 (< 20) wrote:

They are based on current purchase, just like ca property taxes.

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#23) On February 01, 2010 at 3:31 PM, brickcityman (< 20) wrote:

@ TMFMmbop

 

denigrating your private assets?  Its not like they are somehow constraining the value of your home by doing this...  They are only contemplating removal (or reductions as the case may be) of an incentive to own one.  This is not denigrating an asset class, its putting it on par with other similar assets in the same class.


Removing its tax prefferred status does shift the equation some, but not in the same way as say removing the tax preffered status for municipal bonds. 

 

All of this is far and away different from the slippery slope argument you present.

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#24) On February 01, 2010 at 3:34 PM, brickcityman (< 20) wrote:

@ weg915...

 

I could have sworn that I knew a guy who financed a beamer with just a HELOC, but perhaps he either had the equity or used another method.

 

Perhaps I was confusing HELOCs with cash out refis...

 

 

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#25) On February 01, 2010 at 3:37 PM, blake303 (29.19) wrote:

All of this is far and away different from the slippery slope argument you present.

I completely agree. TMFMmbop's last sentence is absolutely absurd.

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#26) On February 01, 2010 at 3:38 PM, BMFPitt (74.53) wrote:

weg915 -

You answered no, then immediately contradicted that answer.  Higher taxes means you would require more money to move away from your house means higher house prices.

Why do you feel it is justifiable to have those who haven't owned a house for 30 years subsidize the lifestyle of those who have?  Also, why do you think that locking people into their houses for life when they would be better served by upsizing or downsizing is a good thing?

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#27) On February 01, 2010 at 3:49 PM, weg915 (< 20) wrote:

If I had a compelling reason, I would move and higher taxes would just be part of the equation.  The price I received for my house would not figure into my decision.  and Yes, I think it is justifiable as I stated above. 

 Nobody is locked into their house - the decision to upsize or downsize is based on circumstance.  There is a give and take.  Many people bought their house high and are having to sell low - the new buyers will pay lower taxes.

But if you want to talk about higher taxes, I think captial gains should be on the table.  

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#28) On February 01, 2010 at 3:58 PM, starbucks4ever (97.71) wrote:

Mortgage interest tax deduction is one of the worst parts of the tax code that should be repealed, and the sooner the better. It doesn't promote ownership, and it doesn't even do much for homeowners in most states except NY and CA. Stated simply, it's an invitation to buy a $1,000,000 house and live tax-free forever. With the deduction available, we have an entire category of tax optimizers who buy a house as a tax evasion vehicle.

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#29) On February 01, 2010 at 4:06 PM, BMFPitt (74.53) wrote:

So let's say you are thinking about moving to a house that you think you would be far happier with - and fair market value would be identical or less than your current house.  You have been in your house for 20 years, and you are saving $10000 a year in taxes because of Prop 13.  You decide you can't move into a cheaper house because it would cost you hundreds of dollars a month - or you will only be able to if you can sell for far higher than natural market value because that's the only way you can afford to move.

I would leave capital gains as-is (other than hedge fund managers would have to stop pretending their salaries are capital gains.)

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#30) On February 01, 2010 at 4:37 PM, blake303 (29.19) wrote:

In addition to a litany of tax increases on the "wealthy" (and no, I don't considered a married couple each making $125 per year in a place like NY, San Fran, or DC to be that )

Having lived in NYC and other expensive cities, I fail to see how a couple making $250,000 (4x the median household income in Manhattan) is not wealthy. It is a pity that a couple earning a quarter of a million a year would be unable to afford a building with a doorman on Central Park or a loft in Tribeca, but does not mean they are not wealthy. 

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#31) On February 01, 2010 at 4:44 PM, TMFMmbop (34.29) wrote:

Again, if I were started from scratch, I would not make the mortgage interest deduction such a significant part of the tax code. In fact, as many here have pointed out, it's prudent to get rid of deductions and simplify the tax code (good luck!).

That said, we all accept that the government makes the rules. But when it comes to something like sales tax or something like the newly instituted plastic bag surcharge in DC, the government tells us what the new charge is BEFORE it goes into effect and then we can pattern our behavior accordingly.

However, when it comes to something like mortgage interest deduction, a homeowner is ostensibly party to a 30-year contract that they entered into with a certain understanding of their external environment that likely fed into their analysis of said contract. The government is now proposing to change the rules.

This not only puts financial pressure on relatively recent homebuyers (who probably are already feeling financial stress regardless of their income level), but also adds uncertainty to any long-term capital commitment decision since the administration has now shown the willingness to aggressively alter the tax code.

Leaving aside whether you agree with mortgage interest deduction or not, that's worrisome. After all, it's regulatory regime uncertainty that has generally led to crippling under-investment in other countries.

Tim

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#32) On February 01, 2010 at 4:48 PM, ArcottRamithorn (< 20) wrote:

Sorry, because i like conservative tax policy (not GOP conservative, but still...) America is a republic, and the income strata that you and many here represent is upper-middle class. Your group is more of a minority than catholics, African Americans, and Latinos (especially in terms of the non legal population; laugh- dont get mad.) 

 

Since we can talk about class differences in 2010 (finally,) lets assume whats in your best interest may not be part of the best policy for the majority of Americans. 

Im doing well pursuing the American dream, and you have done well with your life in terms of income, congrats. My problem is, while i make enough money to pay my way (and uncle sam's) my mom is out of work, and lost her house to. Im not assigning blame, but i cant afford my lifestyle anymore. I might have to leave my Detroit loft, and find something more humble for my families sake. I bet your upsidedown on that manhattan condo arn't you?

Conservative tax policy needs to be accompanied by conservative gov spending, bottom line. If you voted for Bush you got "drunken sailor" spending not conservatism. Time to let the crazy liberals take their shot, insofar as they are still paying 2007 bills that they (Obama) wasn't responsible for. I don't like liberals in the white house, but he was a junior senator and didn't have much involvement with the era of disassembly of Clinton taxes and high spending.

There are some big houses for sale in Poughkeepsie you know? It might be harder to order chineesee food, but your only a $15 train ticket away from the apple. Better yet, why don't you come buy my place in downtown detroit. You can even keep the fridge. 

Be grateful for your enormous success, because you got in when the getting was good. Im working on a law degree, with great grades, full time work + scholarships, and i can't figure out a way to cover many things. Im in the top %'s of top educated, aggressive financially cautious, and of the hardest working in this country. Why should the tax system lean on the less capable, when your parents can keep their roof over their heads?

I've had enough hearing about these problems, it would be much more harmful to find more tax money in the pockets of people below the upper middle class. labor/skilled labor is what needs to be supported right now, not us white collar guys. I really hate to say that, but the future is in education spending, and job development in this post tarp era. 

My last promotion netted me less money in 2008 because of something called the AMT im sure you're familiar with. I know how the imposition feels, when they smack you around. Im, not however going to say you cant be conservative and support tax hikes on the wealthy (spreading the wealth around.) Think about it... 

 You have social incentives in your favor, such as the large percent of tax breaks for those who choose to be married. I live with my girl, but we dont want marriage right now. You wouldnt argue against marital incentives, however you wont be able to say why me and her should pay more than you and your wife do, because we are filling as single taxpayers. (just one example.)

Conservative tax policy in 2010... should pay off the deficit ASAP, and promote job growth and upward mobility to those willing to work.  Obama is working to those ends from what i can tell. If your financial advisor were to recommend a person in loads of interest ridden debt what to do, what would he say? Pay out of interest, ASAP, even if you have to sacrifice your lifestyle/comfort. He might not be able to eat out as much or even keep luxury housing, but once their finances are right-side up things will be better. As an analogy to Obama programs that same guy might decide to pay for school while paying out of debt. It might be twice as hard on him, but pay off in the short term (<10 years?)

  

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#33) On February 01, 2010 at 4:59 PM, starbucks4ever (97.71) wrote:

TMFMmbop,

Yes, I have some sympathy with your last argument. My understanding is that any hypothetical removal of the deduction would be very gradual. If they phase it out over the next 15 years, I promise I won't complain. 

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#34) On February 01, 2010 at 5:07 PM, BMFPitt (74.53) wrote:

TMFMmbop -

I would find it acceptable to simply phase out the mortgage interest subsidy over 5-10 years (by either lowering the cap down to zero, or something similar.)  But either way I want it gone, and I'm a recent homeowner.  I just happen to believe in ending bad policies even if they benefit me.

Now, why is it that this small tweak that would only effect those people least in need of a housing subsidy be so much more terrible than say a 1% hike in the income tax rate?  Is it more sacred just because it's only for a certain class of people (mortgage debtors) and not the general population?

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#35) On February 01, 2010 at 5:15 PM, brickcityman (< 20) wrote:

@ TMFMmbop

 

You point regarding the contractual nature of mortgage is well taken... but you must alsol look at similar things.

 

Few people (outside certain geographic areas) assume that property taxes will be stable.  Home/Flood insurance, often required by lenders, is not optional and has a tendency to fluctuate (again in a single direction).

 

Heck just because you buy a car doesn't mean you have grandfathered rights to buy gas or auto insurance for a fixed rate over the life of the loan.

 

This is the nature of the world.  Prices of doing business move irrespective of the sorts of contracts you hold.

 

Its this sort of logic that yields even more entitlements into our system... 

 

Here's my slipperly slope argument...  Before long no one will want to buy a car, or a house, or upgrade the energy efficiency of their home without a federal tax subsidy. That sort of thing might work for S&P 500 companies, but not all of us are able to buy congressional representation...

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#36) On February 01, 2010 at 5:15 PM, BMFPitt (74.53) wrote:

ArcottRamithorn:  Conservative tax policy in 2010... should pay off the deficit ASAP, and promote job growth and upward mobility to those willing to work.  Obama is working to those ends from what i can tell

My brain just had a blue screen of death.

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#37) On February 01, 2010 at 5:17 PM, AvianFlu (36.82) wrote:

RE: removal of the mortage interest deduction

 Finally! I found something that I agree with Obama on!

Past that, he should be banished to work in the fields in the "worker's paradise" of Cuba.

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#38) On February 01, 2010 at 5:50 PM, BMFPitt (74.53) wrote:

Don't get your hopes up, AvianFlu.  I had a handful of things that I agreed with Bush on, and none of them actually happened.  I'd bet the sum of my mortgage interest deduction that this little piece of good policy will be one of the first things to go when this gets to Congress.

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#39) On February 01, 2010 at 8:12 PM, devoish (98.66) wrote:

This article from the Tax Foundation Blog is interesting and short.

http://www.taxfoundation.org/blog/show/1382.html 

Seems to me with this history, it is a subsidy to the financial industry and benefits no-one but the lender and is actually a tax collected by Gov't and paid to the lender. For the homebuyer nothing changes, but it drives up the cost of the loan, with the homebuyer tax credit portion paid by the Gov't in the form of the credit, through the homebuyer, to the lender.

Maybe to simplify matters, NO ionterest should be deductible, business, credit card, mortgage, nothing.

JMHO.

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#40) On February 01, 2010 at 9:30 PM, BMFPitt (74.53) wrote:

Well credit card interest isn't deductible.  They thankfully got rid of that way back when.  It's amazing to think that at one point Congress was both smart enough to see why that was a bad idea and non-evil enough to actually fix it.

Business interest has to be deductible because you tax business on profits, not earnings. 

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#41) On February 01, 2010 at 11:13 PM, devoish (98.66) wrote:

Why not tax them on earnings?

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#42) On February 02, 2010 at 8:57 AM, ArcottRamithorn (< 20) wrote:

BSOD? try upping your voltage. 

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#43) On February 02, 2010 at 10:13 AM, USNHR (31.86) wrote:

#41) On February 01, 2010 at 11:13 PM, devoish (99.62) wrote:

Why not tax them on earnings?

Because a business that is surviving on earnings, but not making profits, can stay in business, however if you tax their earnings, they can't stay in business. This causes job loss.

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#44) On February 02, 2010 at 10:20 AM, BMFPitt (74.53) wrote:

Why not tax them on earnings?

Mistyped that, obviously, because profits = earnings.  Meant to say revenue.

You tax them on earnings because if you tax them on revenue, you would need a profit margin of at least the tax rate to just break even.  It would massively punish low-margin businesses and be a gift to high-margin businesses.

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#45) On February 02, 2010 at 12:21 PM, AvianFlu (36.82) wrote:

post #44:
Quite right. Oregon just passed a big tax on the revenue of businesses. Just watch businesses bail out of the state now! I suggest many will just go across the river from Portland to Vancouver, Washington. However, we have our own anti-business taxes including a business and occupations tax based of the gross revenue. Maybe Idaho instead??

FYI, Oregon has among the highest unemployment in the US. Look for that to greatly increase.

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#46) On February 02, 2010 at 12:25 PM, brickcityman (< 20) wrote:

@ BMFPitt

 

How could taxing on earnings possible force a company to "break even" unless the tax is 100%?  Isn't the whole point of taxing earnings to apply the percentage to the profit amount? Thus a low-margin business would be no worse off than a high margin business.

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#47) On February 02, 2010 at 1:00 PM, BMFPitt (74.53) wrote:

I have a habit of mixing up different ways of saying something in my head and typing half of each.  See above.

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