November 24, 2017 9:48:09 AM
The story making the rounds is that the Republican tax plan targets homeowners only in expensive blue states -- people who tend to vote for the other party. That's only partly true. Homeowners everywhere would get hit. The reasons will follow.
As a whole, the "reforms" are an abomination. Through some tricks to hide its effects early on, the plan would move more of the nation's tax burden down to the middle class and lower. Some 13 million could lose their health coverage.
Worst of all, the GOP tax plan would cost between $1.5 trillion and $2.2 trillion over 10 years. As a result, the national debt would explode to 123 percent (!!!) of the gross domestic product by 2037 -- that is, unless Republicans were to raid Social Security and Medicare.
That said, not all the proposals affecting homeowners are awful. Just some. The proposal dealing with the deductibility of interest on large mortgages makes sense.
The House plan would cap the amount of mortgage debt eligible for the deduction at $500,000. That would clearly apply to only higher-priced homes, and because housing costs more in the expensive parts of the country, that change would affect more properties in blue states.
But set aside the political implications. The mortgage interest deduction was never wise policy. It favors homeowning over renting. Renters can't take this deduction (although their landlords can).
Canada does not allow deductions for home mortgage interest. And Canadian rates of homeownership are comparable to ours.
But another proposal regarding homeowners and the taxes they pay is downright evil. That is the plan to curb the deduction for local property taxes. The Senate tax bill would kill the deduction altogether. The House version would limit it to $10,000.
Property taxes are how cities and towns pay for police, schools and roadwork. Doing away with their deductibility would hurt local governments' ability to raise revenues to cover such services. It would pain the places with the highest cost of living hardest. And it would, in effect, levy a tax on money people already paid in taxes.
This is an obvious and nasty game to make blue states shoulder more of the nation's tax load, which, because of their higher incomes, they're already doing. But it's also an attack on the principle of federalism -- the idea that power should flow from Washington to the governments closest to the people. By the way, Washington politicians have no business lecturing local governments on what they spend.
There's another sneaky little item in the Republican House tax plan that would make it harder for local governments to finance their projects. It would end the tax exemption on certain kinds of bonds cities, towns and states issue to refinance old bonds. Almost no one's talking about this tax hike, which would move another $17.3 billion into federal coffers, according to the nonpartisan Joint Committee on Taxation.
Homeowners in red states should know that their wealth would also take a hit under the Republican tax plan. As noted, the tax package would probably add $2 trillion to the deficit, give or take. Economists are warning that the rampaging debt would send interest rates into the heavens. Government borrowing would crowd out businesses and people needing loans. That would depress the economy, which is why the tax plan wouldn't pay for itself.
Homeowners from Mississippi to Washington state would see mortgage rates spike upward. Higher interest rates would also reduce the resale value of their real estate.
Tax reform is a good idea, but Republicans really ought to send this monster packing. Must they elect a pedophile to keep it alive?
Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at [email protected]
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