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The world is changing yet tax systems have been slow to change. This can hinder economic progress, lead to a loss in tax revenue, and frustrate taxpayers. Here, I explain some of the problems, offer ideas for reform, and an opportunity to comment on what I post. The focus will be on California taxes. Thanks for reading!
About Annette Nellen
I am a tax professor at San Jose State University. I am also a fellow with the New America Foundation California Program, where I focus on tax reforms that follow the principles of good tax policy, address existing flaws, and best reflect our 21st-century society and economy. I am an active member of the AICPA and ABA Tax Sections. At SJSU, I teach graduate tax courses, direct the Campus Reading Program, chair the First Year Experience planning team, and serve on the Athletics Board.
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Fairness & Equity Hearing
On 9/6/07, the House Ways & Means Committee held a hearing on Fair and Equitable Tax Policy for America's Working Families. The emphasis was on the AMT, the future of the 2001 tax cuts, and carried interests.
What about these inequities?
- Allowance of a mortgage interest deduction on up to two homes and on mortagages totaling up to $1.1 million. There is no reason to allow a mortgage interest deduction on a home other than one's principal residence and the debt amount is too high. Even in Silicon Valley, the median home price is not $1.1 million.
- Fantastic benefits for employees who have employer-provided health insurance and health care. The benefit generally is not taxable to the employer and the employer gets to deduct the cost.
These are two examples of "tax expenditures." They cost the government in terms of lower tax collections. However, they are not direct spending so they do not show up on the budget expenditures. But, they are the equivalent of spending. Example: The government could give write a check to homeowners to help subsidize the debt on their home or they could give them a tax deduction of that would result in the equivalent amount.
These tax benefits are worth more to individuals in higher tax brackets - those with higher incomes.
Why not lower these (and other generous) tax provisions and use the freed up funds to reduce taxes for everyone or use the funds to help provide health insurance to more people or provide housing benefits to more people. The mortgage interest deduction "costs" the government about $80 billion per year and the non-taxable health insurance provision "costs" about $100 billion per year (per 2006 Joint Committee on Taxation report). That's a lot of money!
Where do you think greater equity and fairness can be brought to the federal tax law?
This post was originally published at http://21stcenturytaxation.blogspot.com.
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