A presidential panel
representing a cross section of the corporate, financial services and conservative interests recommended a new middle class tax on previously exempt employer provided healthcare benefits. The panel also suggested a tax hike in the form of a cap on the amount of deductible mortgage interest.
Arguably owners of second homes shouldn't enjoy a tax deduction for that property, but no mention is made of elimination of that perk in press reports of the panel's conclusions. The mortgage interest deduction for a primary residential home is one of the few tax shelters available to the middle class. The obvious unintended consequence of this tax increase would be to accelerate the decline in the price of real estate even if the change were phased in slowly since people look at real property investments in the very long term.
Who would benefit from a decline in the price of real estate? Who would benefit from a tax on employer paid health care?
WASHINGTON (MarketWatch) - A presidential tax-reform panel on Tuesday indicated it was ready to urge changes in the tax treatment of healthcare benefits and mortgage interest deductions when it issues its final report in the next few weeks.
Details are yet to be worked out, but members broadly agreed at the panel's penultimate public meeting to explore the possibility of putting a limit on the amount of healthcare benefits that employers would be able to provide workers tax-free.
The panel also leaned toward altering, but not eliminating, the mortgage-interest deduction and other benefits afforded homeowners, including the possibility of lowering the $1 million mortgage-interest cap now in place.
Former Sen. Connie Mack, the chairman of President Bush's Advisory Panel on Federal Tax Reform, said panelists agreed on the need to modify existing housing provisions, while ensuring that the tax code continues to "promote home ownership," while also addressing concerns that the benefits under current rules are "not shared equally."
(That line just galls me; they are going to sell this as a more fair system? This will be the frame certainly; odds are the senate will follow along as if they believe it. Clear skys anyone?)
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Panel member Timothy Muris argued that putting a cap on health-benefit deductions would help rein in upwardly spiraling healthcare costs.
(There generosity is boundless; increasing middle class taxes will help the middle class.)
Under current law, employer-provided health benefits aren't subject to income tax. Capping the deduction would effectively treat the benefits above a certain amount the same as wages.
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Panel members had previously agreed to recommend repealing the alternative minimum tax, or AMT, a tax created in the late 1960s specifically targeted at a handful of wealthy Americans who avoided paying any income tax. The AMT, which was never indexed, threatens to encompass a growing share of the middle class.
But doing away with it leaves a $1.2 trillion hole in future revenues over the next 10 years, forcing the panel to look at measures to offset the hit.
Altering the housing and healthcare deductions would help plug that hole, but it's unlikely the entire amount could be made up through those measures, Mack told reporters after the meeting.
a little more
Despite the fact that the proposal would aggravate the deficit, the panal looks to increase the taxes the wealthy pay.
``All of us would like to get taxes on investments to a reasonably low level, particularly dividend and capital-gains returns,'' said member Bill Frenzel, a former Republican congressman from Minnesota who is now a scholar at the Brookings Institution in Washington.
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