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TAX REFORM PARANOIA

November 04, 2005

The President's Advisory Panel on Tax Reform has nine members. One member is a former Democratic senator. One member is a law professor who used to work for a Democratic senator. One member was appointed IRS commissioner by President Clinton. These folks worked with two academics, an investment banker and two former Republican legislators over ten months. They held 12 public meetings and issued a final report of hundreds of pages.

And all that work was just an exercise to "screw Democrats."

That, at least, is the odd conclusion of a strange article in the online magazine Slate. The article says that the plan turns the screw on Democrats with its proposed limits on home mortgage interest deduction. The plans would reduce the amount of home acquisition debt for which interest is deductible from the current $1 million to the maximum insurable FHA loan amount - currently about $244,000 to $313,000, depending on region. The plan would further "screw" Democrats by repealing the deduction for state and local taxes.

If this were true, it would be an interesting commentary on the state of the Democratic party. The idea that limiting tax breaks for homes costing over $300,000 would "screw" Democrats would have puzzled Franklin Roosevelt, or even Lyndon Johnson. But as the most expensive homes are on the "blue" coasts, then it must be a plot to oppress the blue state "middle class."

More puzzling still, these changes were recommended by the tax reform panel to finance repeal of the alternative minimum tax - a tax the author of the Slate piece has called "Bush's secret tax on Democrats." It was devilishly clever of the committee to "screw" Democrats by helping them.

The Winterspeak blog doesn't buy the Slate argument:

If there is a single group in the US undeserving of sympathy, it has got to be rich homeowners in the East and West coast. These folks have enjoyed 50%-100%+ increases in the value of their homes over the past 5 years and now enjoy properties worth of half a million dollars, in Boston at least, and more in San Francisco and New York. This wealth was no more earned than a scion's bequest, so why it cannot be taxed the bejeesus out of, I don't know.

For a well-informed discussion of the "blue state" effects of the tax reform recommendations, go to Janet Novack's analysis in Forbes.

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