Bye-Bye Tax Deductions
The $6,000,000,000 a month for Iraq has to come from somewhere. Right?
A panel appointed by U.S. President George W. Bush on Tuesday backed limiting tax breaks for housing and health care, in hopes of making the tax system simpler, fairer, and more friendly to economic growth.
Panel member James Poterba, an economics professor at the Massachusetts Institute of Technology, suggested capping mortgage interest rate deductions at current Federal Housing Administration mortgage limits, which range from around $190,000 to about $310,000, depending on the locality. Total tax revenue foregone from housing provisions is around $100 million a year, Poterba said. "Whenever we think about revenue-raising options, this is one that appears on the table," he said. Under current law, home owners can deduct mortgage interest on loans up to $1 million and home-equity line of credit interest up to $100,000. Home owners may deduct $250,000 in capital gains for the sale of primary residence and the cost of local property taxes.
Tax breaks for employer-provided health insurance are "one of the most opaque and costly tax benefits," said panel member Timothy Muris, who served as chairman of the Federal Trade Commission in during Bush's first term. This insurance is deductible for employers and tax free for employees. Also, some employees can set aside pretax dollars for health care costs not covered under insurance. All tax preferences for health care will cost about $140 billion in 2006, of which $125 billion is for workers' ability to exclude employer-provided health care from their income, Muris said.