Attacking the Home Mortgage Tax Deduction?

Posted on October 10, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

On Tax Reform

By Children’s Home Society of Florida Foundation

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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.

Conclusion

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On the Proposed Tax Cuts

Posted on July 22, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

Senate Debate on Extending 2001/2003 Tax Cuts

By Children’s Home Society of Florida Foundation

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The Senate Finance Committee conducted a hearing on July 14, 2010 to discuss the potential extension of tax cuts. In the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), there were tax reductions for nearly all Americans. The tax reductions continue through 2010, but are set to be repealed on January 1, 2011.

Proposals

The White House has proposed to extend these tax cuts for single persons with incomes under $200,000 ($250,000 for couples), but to increase the capital gain rate and top income tax brackets. Under the White House plan, the capital gain rate will increase from 15% to 20%, the 33% bracket increases to 36% and the 35% tax bracket is raised to 39.6%.

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The Senate

Senate Finance Chair Max Baucus (D-MT) opened the hearing by stating, “Americans are struggling to make ends meet, and we need to do all we can to put more money back in the hands of workers, middle-class families and small businesses so our economy can grow. I support extending the middle-class tax cuts permanently, as soon as possible, so working families can keep more of their hard-earned money.”

Sen. Baucus and the White House are both advocating a permanent extension of the tax cuts for low and middle-income taxpayers, with an increase in taxes for those in the upper brackets.

Ranking Member on the Senate Finance Committee Charles Grassley (R-IA) has repeatedly expressed concern about the increase of taxes on small business owners. He noted, “To those who are pushing the higher marginal rates, I say the burden is on you to show that you are not harming our primary job creators.” Sen. Grassley has noted that two-thirds of new jobs in the past decade have been created by the small business owners who will be subject to the higher taxes.

Editor’s Note: The hearings on taxes are the first step in creation of a tax bill. Because the failure to act this year would result in repeal of all of the tax cuts, it is probable that there will be a tax bill prior to the end of 2010. However, with the shortened legislative calendar due to the fall elections, the tax bill is quite likely to be deferred until after the election.

Conclusion

Douglas Holtz-Eakin is President of the American Action Forum and was formerly the Congressional Budget Office Director. He testified that approximately one-half of the $1 trillion in business income that will be reported in 2011 will be subject to the higher 36% and 39.6% tax brackets. In his opinion these higher rates will reduce the willingness of small businesses to hire new employees.

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”Tremendous Upheaval” Over Estate Tax

Posted on June 7, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

An IRS Prediction by Senator Charles Grassley

By Robert Giese
bob.giese@chsfl.org

Senate Charles Grassley (R-IA) is the ranking Republican on the Senate Finance Committee. In a conference call with several reporters on June 2nd, 2010, he discussed the uncertain future of the estate tax.

The Proposal [Kyle-Lincoln Estate Tax Compromise]

Sen. Grassley noted that Sen. Jon Kyle (R-AZ) and Sen. Blanche Lincoln (D-AR) have proposed that the Senate Finance Committee pass an estate tax bill with a $5 million per person exemption and a 35% top estate tax rate.

However, Grassley expressed the opinion that “the Finance Committee would like to take up consideration of legislation, but we aren’t assured by the majority leader that the bill passed out of committee will be taken up on the floor.”

Senate Rules

Under the Senate rules, even if the Finance Committee were to pass the Kyle-Lincoln estate tax compromise, Majority Leader Harry Reid (D-NV) is not obligated to schedule a floor vote and could simply stall the legislation.

Assessment

In December of 2009, the House passed the Permanent Estate Tax Relief for Families, Farmers and Small Businesses Act of 2009. This makes permanent the 2009 estate exemption of $3.5 million and top estate tax rate of 45%. If the House and Senate are not able to take action on estate taxes by the end of 2010 then on January 1, 2011 the estate tax returns with a 55% top rate and an exemption of $1 million (plus indexed increases).

This would affect many medical professionals as well as hardworking Americans.

Conclusion

If this were to happen, Sen. Grassley stated that there will be a “tremendous upheaval at the grassroots of America.”

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New Agreement on IRA Charitable Rollovers

Posted on May 24, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

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Includes Tax Extenders
By Robert Giese
bob.giese@chsfl.org

After months of negotiation, Senate Finance Committee Chair Max Baucus (D-MT) and House Ways and Means Committee Chair Sander Levin (D-MI) have announced an agreement.

Passed House and Senate

The House and Senate both previously passed bills that would extend over 40 tax provisions, including the IRA Charitable Rollover. Because there were different tax offsets in the House and Senate bills, extended negotiations were required to find tax increases acceptable to both.

The House bill paid for the tax extenders by increasing the tax rate on hedge fund managers. Currently, the “carried interest” or income of hedge fund managers is taxed at capital gain rates. The House proposed to tax this income at the higher ordinary income rates.

American Jobs and Closing Tax Loopholes Act of 2010

Under the compromise published in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213), the “carried interest” amounts will be subject to increased tax. For hedge fund managers, 75% of income is taxed at ordinary rates and 25% is taxed as long-term capital gain.

Vote this Week

The House plans to vote on the bill the week of May 24. Former Chair of the House Ways and Means Committee Charles Rangel (D-NY) stated, “For a lot of members, it’s a very difficult vote and they don’t want to take a vote unless they have assurance that the Senate is going to pass it.”

Assessment

Sen. Max Baucus indicated that he expected to find the 60 votes required for passage in the Senate. As is true in the House, a number of Senators who represent regions with financial service firms are concerned about the change in the tax on hedge fund managers. However, Sen. Baucus indicates that the votes are likely to be sufficient to pass the bill.

Editor’s Note: Because the tax extenders portion of the bill includes the educational deduction for teachers, a research and development credit for business and many other popular provisions, similar bills normally pass by large margins. Even with the tax offsets, it is probable that the bill will pass in the next few weeks. Charities should begin planning their fall IRA Charitable Rollover marketing campaigns. Because most individuals with larger IRAs take their required minimum distributions in the fall, there is still time to have a successful IRA Rollover Campaign in 2010.

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Conclusion

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