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On Tax Reform

By Children’s Home Society of Florida Foundation

Senate Finance Committee Chairman Max Baucus (D-MT) has been holding a series of hearings on major tax reform. The hearings focus on potential changes in itemized deductions. If itemized deductions for medical care, mortgage interest, state and local taxes or charitable gifts are reduced, then it may be possible to lower the overall tax rates.

The “Big Four” Tax Decuctions

These four deductions are termed “tax expenditures” and are all currently under review. At the October 6th hearing of the Senate Finance Committee, witnesses discussed changes in home mortgage deductions.

Sen. Baucus stated, “As we work to improve and simplify the tax code, we need to make sure tax incentives are structured to encourage certainty and stability, not booms and busts in the housing market. And as we reduce the deficit, we need to insure every dollar in tax expenditures is spent wisely – and spent efficiently.”

Orrin Hatch Speaks

The senior Republican Senator on the committee is Orrin Hatch (R-UT). He expressed concern about changing the mortgage deduction and noted, “Given the still precarious status of the nation’s housing markets and past mistakes made by government to prop up these markets, it is fair to say that Congress needs to tread carefully when addressing policies that affect real estate.”

John Breaux Speaks

Former Sen. John Breaux was a Co-Chair of the President’s Advisory Panel on Federal Tax Reform in 2005. This panel started by reviewing the ability of taxpayers to deduct interest payments on up to “$1.1 million of housing debt on first and second homes.” They suggested that this benefit is primarily helpful to those with larger incomes who itemize deductions. The panel proposed that the mortgage deduction should be changed to a credit of 15% of mortgage payments on loans up to $412,000. In recognition of the major impact of this change on homeowners, Sen. Breaux recommended that the change would be phased in gradually over five years.

Home Builders Speak

Representatives of the home building industry also testified before the panel. Gregory Nelson, Vice President for homebuilder PulteGroup, Inc. stated, “Eliminating the mortgage interest deduction would quickly turn that fear into reality and send us into another negative feedback loop of falling house prices, hundreds of thousands of mortgages sinking under water and more house foreclosures hitting banks balance sheets and the resale market.”

Editor’s Note: Sen. Baucus will continue to hold hearings on major tax reform. Your editor and this organization take no specific position on any of the proposals. This information is offered as a service to our readers.

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Filed under: Taxation | Tagged: Children's Home Society of Florida Foundation, mortgage tax deductions, Senate Finance Committee | 2 Comments »