Monday , December 18 2017

Higher taxes for wealthy favored – Plan would alter mortgage interest deduction

US President Donald Trump (right), speaks during a meeting with former US secretary of state Henry Kissinger in the Oval Office of the White House on Oct 10 in Washington, DC. (AFP)

WASHINGTON, Oct 11, (Agencies): As President Donald Trump promotes a tax plan critics say would raise the federal deficit by slashing corporate rates and eliminating some taxes paid by the rich, some three quarters of Americans believe the wealthiest should pay more, Reuters/Ipsos polling shows. Trump is expected to travel on Wednesday to Harrisburg, Pennsylvania, where he will explain to a group of workers, including many truckers, how he believes they will benefit from his tax plan released two weeks ago.

The president is expected to describe how, if his plan became law, truckers would benefit from proposals to lower tax rates for the middle class, cut taxes paid by the manufacturers whose products they transport, create a new tax category and rate for “pass-through” companies, and eliminate a tax paid by the wealthiest 0.2 percent of estates, a senior administration official said.

Trump has said his tax plan would be a “miracle for the middle class” and spur economic growth by creating a better tax climate for businesses. Independent analysts have said it would provide uneven tax relief, add to the federal budget deficit and, in some cases, benefit the very wealthy. Taxpayers in the highest 1 percent of incomes, making more than $730,000 annually, for example, would receive about half of the total tax benefit from Trump’s proposed overhaul, with their after-tax income expected to increase an average of 8.5 percent, according to the Tax Policy Center, a Washington-based nonprofit. A Reuters/Ipsos poll conducted from Sept. 29 to Oct 5 found that 53 percent of adults “strongly agree” that the wealthiest Americans should pay higher tax rates.

Rates
An additional 23 percent “somewhat agree” the wealthiest should pay higher tax rates, according to the poll of 1,504 people, which had a credibility interval, a measure of accuracy, of plus or minus 6 percentage points. Trump’s tax framework proposed cutting the corporate tax rate to 20 percent from 35 percent and creating a new category for passthrough income earned by partners and sole proprietors, which would be taxed at 25 percent, instead of the 39.6 percent top individual rate currently paid by some.

It also proposed cutting the top individual rate to 35 percent, but the congressional tax-writing committees fleshing out Trump’s plan may opt to create an additional, higher rate for the highest earners. Trump’s plan also suggested eliminating the 40 percent tax paid on estate assets worth more than $5.5 million, or $11 million for a married couple. Meanwhile, each year, taxpayers subsidize America’s homeowners by roughly $70 billion, with the benefits fl owing disproportionately to coastal areas with high incomes and pricey homes, from New York and Washington to Los Angeles and San Francisco.

The subsidy for homeowners comes in the form of a deduction from their taxes for the interest they pay on their mortgages. An affl uent New Yorker, for example, would have saved an average of $3,694 in 2015, according to an analysis of IRS data released Wednesday by the real estate company Apartment List. In metro Los Angeles, the deduction was worth an average of $4,568, in San Francisco still more: $5,500.

But under President Donald Trump’s tax proposal, some Americans would likely be steered away from this tax break. Here’s why: Trump’s plan would double the standard deduction, which taxpayers can take if they don’t itemize deductions. The doubled standard deduction could exceed the savings many receive now from itemizing their expenses for housing, state and local taxes and related costs. But the Trump plan would also eliminate many existing itemized deductions, including those for state and local taxes, so that some people who now itemize might end up paying more.

The president’s proposal would essentially marginalize the use of the mortgage interest deduction, which is the government’s primary form of direct housing assistance: It distributes three times more money this way than it does in the form of vouchers for impoverished renters. Trump administration officials say their tax plan is designed to benefit the middle class. Yet it’s not clear from the scant details of the framework released so far how many families would enjoy lower tax bills and how many would face higher bills.

Real
Even though the Trump measure would preserve the mortgage interest deduction, it’s confronting resistance from the real estate industry because it would likely reduce the number of people seeking the deduction. Estimates by the real estate firm Zillow suggest that someone buying a home worth at least $305,000 today would still qualify for the deduction. But under the Trump plan, only homes worth $801,000 or more would receive the deduction. This has led the industry to push back against the plan. “We don’t want to go backwards — we don’t want to lose what incentives that we have,” said Jamie Gregory, deputy chief lobbyist for the National Association of Realtors.

The National Association of Homebuilders says it might be open to eliminating the mortgage interest deduction so long as homeownership was protected elsewhere in the tax code through the use of a possibly more generous tax credit. (A credit, which is subtracted from the amount of tax someone owes, is more generous than a deduction, which reduces the amount of income to be taxed.) The advantage of moving to a credit is that more homeowners would be eligible to claim it than the 34 million who receive the mortgage interest deduction, said Rob Dietz, the homebuilder association’s chief economist. But there are no signs that the idea of a credit has gained traction within Congress or the White House.

Trump proclaimed in June that his tax plan would accelerate economic growth to ensure that “hard-working Americans enjoy a fair chance at becoming homeowners.” Chris Salviati, a housing economist at Apartment List, noted that the main effect of the mortgage interest deduction is to enable people to spend more on homes rather than to increase ownership, which is near a 51-year low. Though the benefits of tax breaks for housing skew most toward people in the top 20 percent of income, they also tend to help middle class Americans. Roughly half the households in metro Washington with incomes between $74,000 and $112,000 — a group that could be considered middle class in that area — take the mortgage interest deduction and saved an average $2,530 in 2015. The average home price in the Washington area is just below $400,000.

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