We're doing a mortgage refi at 3.75% -- someone tell me why that interest should be deductible?

[Anonymous]

Why are you just picking on the mortgage interest deduction?

I pay an effective tax rate of 23% on my income of somewhere between 200K and 300K. I would probably pay more except for the mortgage interest deduction.

Mitt Romney pays 13% on a far larger income. Why not treat all income equally, so he can pay the same share I do.

Hedge Fund managers also have some sweet deal where they call their income capital gains and they get to use the lower rate.

It's nuts.

[Anonymous]

I just learned this afternoon, that in Germany, people prefer to rent rather than to buy. They have 40% home ownership compared to 70% in the United States. All in all the Germans are doing better than a lot of countries economically. While I would need to know more, that suggests the possibility that it's not just renting that makes communities more transient.

Where are you getting these statistics? The homeownership rate in the US never reached 70%, even in 2005-2007.

[Anonymous]

Anonymous wrote:OP, in theory I have no problem getting rid of the mortgage tax deduction but in practice it would hurt a lot in the short run. If we could phase it in I would be willing to do it.

It really is such a free ride for homeowners. I love how people moan about the poor getting handouts when the mortgage tax deduction allows me to deduct business trips, my internet connection and computer gear and even books I buy related to work.

Why do you say it is a 'free ride'? You don't think the interest deduction is embedded into the house price. If you got rid of it today, house prices will go down even more. Homeowners would pay more taxes and they would find their house value has dropped again. This is not a good time to get rid of it.

Again, I ask, why pick on this deduction and not the many other deductions and tools people use to shield wealth. Why not tax investment the same as labor?

There is not a chance I would support removal of this deduction unless the tax code was made more fair for the middle class relative to the 1%. Again, Romney paid 13% in taxes last year, which is less than what I pay with my interest deduction.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP, in theory I have no problem getting rid of the mortgage tax deduction but in practice it would hurt a lot in the short run. If we could phase it in I would be willing to do it.

It really is such a free ride for homeowners. I love how people moan about the poor getting handouts when the mortgage tax deduction allows me to deduct business trips, my internet connection and computer gear and even books I buy related to work.

Why do you say it is a 'free ride'? You don't think the interest deduction is embedded into the house price. If you got rid of it today, house prices will go down even more. Homeowners would pay more taxes and they would find their house value has dropped again. This is not a good time to get rid of it.

Again, I ask, why pick on this deduction and not the many other deductions and tools people use to shield wealth. Why not tax investment the same as labor?

There is not a chance I would support removal of this deduction unless the tax code was made more fair for the middle class relative to the 1%. Again, Romney paid 13% in taxes last year, which is less than what I pay with my interest deduction.

In the past 12 hours I've read today's WP editorial by the Pimco guy as well as this transcript: http://www.cnbc.com/id/48166800/CNBC_Transcript_Warren_Buffett_Alan_Simpson_Erskine_Bowles_On_Fixing_the_Debt_Problem

As we fuss about who pays more and whether rates or absolute dollars are more important, we risk losing sight of the looming crisis. We are borrowing massive amounts of money from foreigners to pay our bills, and what do we do about that? There's no 1 answer.

Frankly, I don't care what percent Romney paid last year. I do care that one person paid vastly more tax than most of us--in my view he's paying his share. But---I fully accept differing opinions here so higher marginal rates are ok with me as long as a smart economist advises us on the tipping point at which it results in more harm than good.

But while we do that, can someone explain to me why we have more firemen that we did 20 years ago but we have fewer fires?

Bottom line--whether in Greece, Argentina, or US--we get the govt we deserve. As long as we peck at the other guy and whine about fairness we'll hire politicians to parrot those views for us and we'll get nothing done----until---

A huge crisis forces our hand. Such as "dear america: we don't want your bonds anymore. signed--china" Then rates spike 4 points, our interest on interest cost doubles or triples, and we are truly in the crapper. At that point I don't think we'll have a lot of hand-wringing about what rate my neighbor is paying.



OP here. We've got a nice lively discussion here--and no one's been insulted or cursed yet! Maybe we can "all get along."

I picked on the mtg deduction because I was struck by my upcoming refi--no more no less. While the stats may have been off, I agree that out % of homeownership (which I believe peaked near 60%) affords us no special community building characteristics. Canada seems to do fine w/o a deduction, and are we to say countries w/o high home ownership lack our sense of community? To the contrary, one of our economic strengths over 200 years has been our flexible labor market---the euro experiment was in part an attempt to replicate. Someone needs to show me data to support that thesis.

Please--can we remember that correlation and causation are very different?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes, can we PLEASE not hear that ridiculous "40% of Americans pay nothing in taxes" line ever again? This is one of the most educated regions in the country, people. THINK.

In 2011, 46% of households paid nothing in federal income taxes. Why is it wrong to say so?

Those people still pay sales tax, and in some, but not most cases, state taxes. So they have some taxes, but not federal income taxes.

Mainly because it is a straw man argument.

The payroll tax burden is very real. And since revenues collected from payroll taxes are currently used to pay for the operations of government, they are de facto income taxes.

The payroll tax burden is indeed very real. As is the federal income tax one - at least for the people who 1) do have to pay it and 2) are not wealthy enough to live off capital gains. It is you the one engaging in straw man arguments by ignoring this fact and implying previous PPs said 50% people pay no taxes at all. No one here has said that.

You must suffer from poor reading comprehension. The previous pp trotted out the "46% of households pay nothing in federal income taxes." I rounded up to 50% in my rebuttal. Onbviously, these readily evident facts were lost on you. Next time, if you cannot follow along, please don't contribute.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Yes, can we PLEASE not hear that ridiculous "40% of Americans pay nothing in taxes" line ever again? This is one of the most educated regions in the country, people. THINK.

In 2011, 46% of households paid nothing in federal income taxes. Why is it wrong to say so?

Those people still pay sales tax, and in some, but not most cases, state taxes. So they have some taxes, but not federal income taxes.

Mainly because it is a straw man argument.

The payroll tax burden is very real. And since revenues collected from payroll taxes are currently used to pay for the operations of government, they are de facto income taxes.

The payroll tax burden is indeed very real. As is the federal income tax one - at least for the people who 1) do have to pay it and 2) are not wealthy enough to live off capital gains. It is you the one engaging in straw man arguments by ignoring this fact and implying previous PPs said 50% people pay no taxes at all. No one here has said that.

You must suffer from poor reading comprehension. The previous pp trotted out the "46% of households pay nothing in federal income taxes." I rounded up to 50% in my rebuttal. Onbviously, these readily evident facts were lost on you. Next time, if you cannot follow along, please don't contribute.

Wow, you still don't get it. Either you don't understand what "straw man" means, or for you income tax = payroll tax. In either case, have a nice day!

[Anonymous]

I think that the previous poster does not believe there is a meaningful difference between payroll tax and income tax. It still affects your disposable income, regardless of what it is called. I think she adequately acknowledged the technical distinction when she called these taxes "de facto" income taxes. She just does not believe it is meaningful.

You might argue that it does not matter whether Mitt Romney paid tax on earned income vs. capital gains, as long as he pays taxes. Same logic.

[Anonymous]

and I think this tangent is an argument about what brand of fire extinguisher to use while the house is burning.

[Anonymous]

Anonymous wrote:I think that the previous poster does not believe there is a meaningful difference between payroll tax and income tax. It still affects your disposable income, regardless of what it is called. I think she adequately acknowledged the technical distinction when she called these taxes "de facto" income taxes. She just does not believe it is meaningful.

You might argue that it does not matter whether Mitt Romney paid tax on earned income vs. capital gains, as long as he pays taxes. Same logic.

Everyone who is an employee pays payroll taxes. Most people, additionally, pay income taxes, while some don't. And funding for many public goods depends on income, not payroll, taxes. So, the distinction is pretty important. If we're talking income taxes, that's what we are talking about, and mixing that with payroll taxes is not that fruitful.

Btw, I do agree that there's more important fish to fry, but we can not ignore significant parts of reality.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I think that the previous poster does not believe there is a meaningful difference between payroll tax and income tax. It still affects your disposable income, regardless of what it is called. I think she adequately acknowledged the technical distinction when she called these taxes "de facto" income taxes. She just does not believe it is meaningful.

You might argue that it does not matter whether Mitt Romney paid tax on earned income vs. capital gains, as long as he pays taxes. Same logic.

Everyone who is an employee pays payroll taxes. Most people, additionally, pay income taxes, while some don't. And funding for many public goods depends on income, not payroll, taxes. So, the distinction is pretty important. If we're talking income taxes, that's what we are talking about, and mixing that with payroll taxes is not that fruitful.

Btw, I do agree that there's more important fish to fry, but we can not ignore significant parts of reality.

And that's where you are wrong. That's the way it is SUPPOSED to work, but it's not the way it ACTUALLY works.

The U.S. spends more than $3 trillion a year.

It collects $1.16 trillion from INCOME taxes
It collects $824 billion from PAYROLL taxes.

The deficit is a bit north of $1 trillion. Without the payroll taxes it would be more like $2 trillion.

Stats: http://www.irs.gov/taxstats/article/0,,id=102886,00.html

Those $824 billion in payroll taxes are currently being used to pay for public goods. They are not locked up in some Social Security account. The distinction is NOT very important.

In any case, harping on the fact that 46% of Americans don't pay income taxes is the wrong issue. Those 46% don't pay because they are too poor not because they're somehow using sophisticated accounting techniques to dodge an obligation. The fact that such a large proportion of our country is too poor to pay income taxes is a bigger policy issue than who's paying what type of tax.

Furthermore, it's not true to suggest that the payroll tax burden is an equal burden for higher earners. The SS cap makes it a diminishing concern for people who earn, say $500,000 a year in salary. They stop paying the SS portion of FICA by around March or April.

[Anonymous]

No. It is only fruitful if u are trying to show lower income people do not paid taxes. A tax is a tax. Payroll taxes are loaned to the federal government and use to fund the budget. People only care about their over all rate.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think that the previous poster does not believe there is a meaningful difference between payroll tax and income tax. It still affects your disposable income, regardless of what it is called. I think she adequately acknowledged the technical distinction when she called these taxes "de facto" income taxes. She just does not believe it is meaningful.

You might argue that it does not matter whether Mitt Romney paid tax on earned income vs. capital gains, as long as he pays taxes. Same logic.

Everyone who is an employee pays payroll taxes. Most people, additionally, pay income taxes, while some don't. And funding for many public goods depends on income, not payroll, taxes. So, the distinction is pretty important. If we're talking income taxes, that's what we are talking about, and mixing that with payroll taxes is not that fruitful.

Btw, I do agree that there's more important fish to fry, but we can not ignore significant parts of reality.

And that's where you are wrong. That's the way it is SUPPOSED to work, but it's not the way it ACTUALLY works.

The U.S. spends more than $3 trillion a year.

It collects $1.16 trillion from INCOME taxes
It collects $824 billion from PAYROLL taxes.

The deficit is a bit north of $1 trillion. Without the payroll taxes it would be more like $2 trillion.

Stats: http://www.irs.gov/taxstats/article/0,,id=102886,00.html

Those $824 billion in payroll taxes are currently being used to pay for public goods. They are not locked up in some Social Security account. The distinction is NOT very important.

In any case, harping on the fact that 46% of Americans don't pay income taxes is the wrong issue. Those 46% don't pay because they are too poor not because they're somehow using sophisticated accounting techniques to dodge an obligation. The fact that such a large proportion of our country is too poor to pay income taxes is a bigger policy issue than who's paying what type of tax.

Furthermore, it's not true to suggest that the payroll tax burden is an equal burden for higher earners. The SS cap makes it a diminishing concern for people who earn, say $500,000 a year in salary. They stop paying the SS portion of FICA by around March or April.

Thank you for the additional data, but I would challenge a few points:

1) Under what definition of "poor" can one say that 46% of all citizens are "too poor" to pay income taxes?

2) You outline above the revenues collected. I don't see there the current and future expenditures that those revenues are supposed to fund. Do you have those numbers? Those $824 billion are NOT used to pay for public goods; net net they are used to bring benefits to individuals who earned payroll-related benefits (true, benefits are deferred and pooled, but so what). In other words, if you have $824 billion in payroll taxes, but also $824 billion in payroll-related expenditures like SS, current and future, you cannot say that those $824 billion are devoted to public goods like infrastructure, education, state department...

3) The employee portion of the payroll tax is 6.2%, whereas all income tax rates are higher, so I don't see how one can argue that somehow paying payroll taxes more or less equals paying payroll + income.

My main point here is that this famous 46% is to a large extent a result of policy choices (exacerbated by the economic crisis we live in), and that I question the wisdom of such policy. As just one example of the many policies that should be reevaluated.

[Anonymous]

Anonymous wrote:

I just learned this afternoon, that in Germany, people prefer to rent rather than to buy. They have 40% home ownership compared to 70% in the United States. All in all the Germans are doing better than a lot of countries economically. While I would need to know more, that suggests the possibility that it's not just renting that makes communities more transient.

Where are you getting these statistics? The homeownership rate in the US never reached 70%, even in 2005-2007.

I heard it in a report on the focus on paying cash (rather than using credit) in Germany which aired on Al-Jazeera English yesterday. I don't claim to be an expert on this - perhaps they got their info wrong - but I did find this on Wikipedia just now:

http://en.wikipedia.org/wiki/Homeownership_in_the_United_States

The homeownership rate in the United States[1][2] in 2009 remained similar to that in other post-industrial nations[3] with 67.4% of all occupied housing units being occupied by the unit's owner. Home ownership rates vary depending on demographic characteristics of households such as ethnicity, race, type of household as well as location and type of settlement.

That does round up to 70%. Perhaps Al-Jazeera and Wikipedia are using a different definition of home ownership than you are.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think that the previous poster does not believe there is a meaningful difference between payroll tax and income tax. It still affects your disposable income, regardless of what it is called. I think she adequately acknowledged the technical distinction when she called these taxes "de facto" income taxes. She just does not believe it is meaningful.

You might argue that it does not matter whether Mitt Romney paid tax on earned income vs. capital gains, as long as he pays taxes. Same logic.

Everyone who is an employee pays payroll taxes. Most people, additionally, pay income taxes, while some don't. And funding for many public goods depends on income, not payroll, taxes. So, the distinction is pretty important. If we're talking income taxes, that's what we are talking about, and mixing that with payroll taxes is not that fruitful.

Btw, I do agree that there's more important fish to fry, but we can not ignore significant parts of reality.

And that's where you are wrong. That's the way it is SUPPOSED to work, but it's not the way it ACTUALLY works.

The U.S. spends more than $3 trillion a year.

It collects $1.16 trillion from INCOME taxes
It collects $824 billion from PAYROLL taxes.

The deficit is a bit north of $1 trillion. Without the payroll taxes it would be more like $2 trillion.

Stats: http://www.irs.gov/taxstats/article/0,,id=102886,00.html

Those $824 billion in payroll taxes are currently being used to pay for public goods. They are not locked up in some Social Security account. The distinction is NOT very important.

In any case, harping on the fact that 46% of Americans don't pay income taxes is the wrong issue. Those 46% don't pay because they are too poor not because they're somehow using sophisticated accounting techniques to dodge an obligation. The fact that such a large proportion of our country is too poor to pay income taxes is a bigger policy issue than who's paying what type of tax.

Furthermore, it's not true to suggest that the payroll tax burden is an equal burden for higher earners. The SS cap makes it a diminishing concern for people who earn, say $500,000 a year in salary. They stop paying the SS portion of FICA by around March or April.

Thank you for the additional data, but I would challenge a few points:

1) Under what definition of "poor" can one say that 46% of all citizens are "too poor" to pay income taxes?

2) You outline above the revenues collected. I don't see there the current and future expenditures that those revenues are supposed to fund. Do you have those numbers? Those $824 billion are NOT used to pay for public goods; net net they are used to bring benefits to individuals who earned payroll-related benefits (true, benefits are deferred and pooled, but so what). In other words, if you have $824 billion in payroll taxes, but also $824 billion in payroll-related expenditures like SS, current and future, you cannot say that those $824 billion are devoted to public goods like infrastructure, education, state department...

3) The employee portion of the payroll tax is 6.2%, whereas all income tax rates are higher, so I don't see how one can argue that somehow paying payroll taxes more or less equals paying payroll + income.

My main point here is that this famous 46% is to a large extent a result of policy choices (exacerbated by the economic crisis we live in), and that I question the wisdom of such policy. As just one example of the many policies that should be reevaluated.

Your points are fair, but I would rebut this way:

1) Right now you basically don't start paying income taxes as a family of four until you earn around $30,000 (as a renter). Homeowners, of course, may be slightly higher. I don't know if you consider that to be low income or not, but I do. I get the $30,000 by taking the standard deduction ($11,700, married filing jointly) plus four personal exemptions (3,800 a piece) plus the value of two child credits.

2) Yes, there are future liabilities for Medicare and Social Security. Clearly. but that doesn't change the fact that the government would not operate in the here and now were it not for payroll taxes. I'm not really arguing that more shouldn't pay -- I agree with you there. I just don't think the 46% figure says what you think it does, and I think it's wrong to discount the payroll tax.

3) Highest earners clearly have the most capacity to pay more and are being taxed at historically low rates. Start there. Then figure out how to get middle income people back into the system. There's not much to be gained from taxing corporations, either.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think that the previous poster does not believe there is a meaningful difference between payroll tax and income tax. It still affects your disposable income, regardless of what it is called. I think she adequately acknowledged the technical distinction when she called these taxes "de facto" income taxes. She just does not believe it is meaningful.

You might argue that it does not matter whether Mitt Romney paid tax on earned income vs. capital gains, as long as he pays taxes. Same logic.

Everyone who is an employee pays payroll taxes. Most people, additionally, pay income taxes, while some don't. And funding for many public goods depends on income, not payroll, taxes. So, the distinction is pretty important. If we're talking income taxes, that's what we are talking about, and mixing that with payroll taxes is not that fruitful.

Btw, I do agree that there's more important fish to fry, but we can not ignore significant parts of reality.

And that's where you are wrong. That's the way it is SUPPOSED to work, but it's not the way it ACTUALLY works.

The U.S. spends more than $3 trillion a year.

It collects $1.16 trillion from INCOME taxes
It collects $824 billion from PAYROLL taxes.

The deficit is a bit north of $1 trillion. Without the payroll taxes it would be more like $2 trillion.

Stats: http://www.irs.gov/taxstats/article/0,,id=102886,00.html

Those $824 billion in payroll taxes are currently being used to pay for public goods. They are not locked up in some Social Security account. The distinction is NOT very important.

In any case, harping on the fact that 46% of Americans don't pay income taxes is the wrong issue. Those 46% don't pay because they are too poor not because they're somehow using sophisticated accounting techniques to dodge an obligation. The fact that such a large proportion of our country is too poor to pay income taxes is a bigger policy issue than who's paying what type of tax.

Furthermore, it's not true to suggest that the payroll tax burden is an equal burden for higher earners. The SS cap makes it a diminishing concern for people who earn, say $500,000 a year in salary. They stop paying the SS portion of FICA by around March or April.

Thank you for the additional data, but I would challenge a few points:

1) Under what definition of "poor" can one say that 46% of all citizens are "too poor" to pay income taxes?

2) You outline above the revenues collected. I don't see there the current and future expenditures that those revenues are supposed to fund. Do you have those numbers? Those $824 billion are NOT used to pay for public goods; net net they are used to bring benefits to individuals who earned payroll-related benefits (true, benefits are deferred and pooled, but so what). In other words, if you have $824 billion in payroll taxes, but also $824 billion in payroll-related expenditures like SS, current and future, you cannot say that those $824 billion are devoted to public goods like infrastructure, education, state department...

3) The employee portion of the payroll tax is 6.2%, whereas all income tax rates are higher, so I don't see how one can argue that somehow paying payroll taxes more or less equals paying payroll + income.

My main point here is that this famous 46% is to a large extent a result of policy choices (exacerbated by the economic crisis we live in), and that I question the wisdom of such policy. As just one example of the many policies that should be reevaluated.

Your points are fair, but I would rebut this way:

1) Right now you basically don't start paying income taxes as a family of four until you earn around $30,000 (as a renter). Homeowners, of course, may be slightly higher. I don't know if you consider that to be low income or not, but I do. I get the $30,000 by taking the standard deduction ($11,700, married filing jointly) plus four personal exemptions (3,800 a piece) plus the value of two child credits.

2) Yes, there are future liabilities for Medicare and Social Security. Clearly. but that doesn't change the fact that the government would not operate in the here and now were it not for payroll taxes. I'm not really arguing that more shouldn't pay -- I agree with you there. I just don't think the 46% figure says what you think it does, and I think it's wrong to discount the payroll tax.

3) Highest earners clearly have the most capacity to pay more and are being taxed at historically low rates. Start there. Then figure out how to get middle income people back into the system. There's not much to be gained from taxing corporations, either.

A pleasure to discuss with you. I agree on many points, and disagree on some assumptions and priorities, but there'd be ground to work

I got curious about Social Security expenses, and googled this good overall budget chart. I believe it reinforces the key point I was trying to make (with current Social Security costs alone eating most of the $824 billion), but I can see how in any case it is only a relatively small part of the whole picture:
http://www.federalbudget.com/chart.gif