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Will Romney’s Tax Plan End Your Mortgage Deduction?

In the second presidential debate between President Obama and Gov. Romney the term “mortgage” came up only twice: once in a question from an audience member and once again in a response by Gov. Romney.

For Gov. Romney it was a good chance to get to the specifics of his tax revision proposals. Here was an opportunity to lay out specifics, something demanded by critics, and he did.

“In terms of bringing down deductions,” said Romney, “one way of doing that would be say everybody gets — I’ll pick a number – $25,000 of deductions and credits, and you can decide which ones to use. Your home mortgage interest deduction, charity, child tax credit, and so forth, you can use those as part of filling that bucket, if you will, of deductions.

“But your rate comes down and the burden also comes down on you for one more reason, and that is every middle-income taxpayer no longer will pay any tax on interest, dividends or capital gains. No tax on your savings. That makes life a lot easier.”

If we go with the governor’s formulation several problems arise.

Higher Taxes For The Middle Class

First, for many middle-class families the size of Romney’s bucket is just too small. They would have less to deduct than they do today — meaning that tax payments would be higher.

For example, many middle-class households deduct not just mortgage interest but also property taxes and state income taxes. Combine these costs together and it’s not hard to top $25,000. In other words the $25,000 in deductions and credits that Romney is talking about represent a cap, the absolute maximum that a middle income family could shield from taxes. It’s a way to reduce or eliminate the home mortgage deduction by another name.


Of greater concern is that the $25,000 figure was presented at the debate but Romney has also suggested that the universal deduction could be just $17,000 according to BloombergBusinessWeek. This far-lower amount means that huge numbers of middle-class taxpayers would be hit with substantial and bigger tax increases then the $25,000 tax plan.

And, of course, there is no reason why $17,000 would be the actual number once the program passed through Congress.

Second, Gov. Romney says “middle income” taxpayers will no longer have to pay any tax on interest, dividends or capital gains. This sounds pretty good until you think through the logic of what is being said.

The Romney plan would leave in place Social Security and Medicare taxes, taxes which are based on work-related income. Since most people get most of their income from their labor they would be taxed. Those with secret bank accounts in Switzerland or the Cayman Islands would pay little or nothing.

Rich Folks Income Untouched

However, if your income comes largely from dividends, interest or capital gains there would be no tax on the money that flows through to you. Now just look at your neighborhood. How many people on your street get a lot of their income from dividends, interest or capital gains? Unless you’re street has a lot of mansions the betting is that few if any of your neighbors get the majority of their money from anything but their labor, whether their labor is teaching in school, running a computer, farming or fixing pipes.

Romney packages his tax proposal is a boon to the middle class. In fact, many members of the middle class would see deductions fall and taxes rise while members of the Romney class would see lower taxes and fatter bank accounts because of his promised 20 percent general tax cut.

Meanwhile, the federal government — the only government we have — is bleeding to death because tax revenues are insufficient and the cost of undeclared wars is too high. Huge corporations pay little or nothing in taxes while the same is true for many of the seriously rich.

Romney had a chance to score big points in the debate by showing how the middle class would benefit from his tax proposal. But to score big points you have to have something to say and no matter how slick the Romney plan is expressed it’s simply trickle-down economics continued from the Bush era, the very policies and practices which demolished the economy and which impact us today.

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