Tax Panel Takes a Populist Position on Taxes

President Bush's Tax Advisory Panel may have recommended something that flies in the face of Bush's critics. The tax recommendations, if adopted, may actually help the bulk of Americans, and not the affluent.

(PRWEB) November 5, 2005 -- The most controversial aspect of the Tax Panel's recommendation seems to be related to mortgage interest deduction limits. But, according to the IRS, today about 70% of Americans file tax form 1040-A or 1040-EZ, the "short forms". These forms do not allow mortgage interest deductions to be claimed. So for about 70% of Americans, changes in mortgage interest deduction tax law will have little direct effect on them. But other effects from these tax law changes may work to the advantage of the 70% of Americans who file tax form 1040-A or 1040-EZ.

According to the New York Times (http://www.nytimes.com/2005/11/03/business/03tax.html) "The panel had a powerful rationale behind its proposal: many economists say the real estate subsidy is one of the tax code's most unfair features, overwhelmingly benefiting the affluent and pulling investment from the rest of the economy into the housing sector. Today, most of the mortgage tax advantages accrue to the rich rather than struggling first-time homeowners. More than 55 percent of the mortgage tax subsidy last year, according to the Congressional Joint Committee on Taxation, accrued to just 12 percent of taxpayers with incomes above $100,000."

The Times added, "Low-income homeowners often do not claim the deduction (for home mortgage interest), opting instead to take the $10,000 standard deduction available to families. Turning the deduction into a tax credit would equalize its value and make it available to more people on the lower end of the market."

Affordable housing in the high-priced real estate markets is a problem often talked about. And, perhaps the tax law changes proposed, if adopted, would also help level the housing market for the benefit of more Americans. Some analysts and special interest groups, critical to the Tax Panel's recommendations, fear such changes in tax laws will cause housing prices to fall, especially in high-cost real estate markets. But James Poterba, an economist at the Massachusetts Institute of Technology who is on the president's panel argues that it is unlikely home prices would fall as much as others fear. For example, the tax law changes could slow investment in housing, thus reducing the supply of homes along with the demand. Methods of financing homes could also change in response to the tax laws.

In fact, reducing the tax code's subsidy to housing may be a sound idea. "It's an appropriate change to the tax code," said Mark Zandi, chief economist at Economy.com, a research firm. "While it may have made sense a quarter of a century ago, now I don't see a compelling advantage to providing these tax advantages to housing."

Edward L. Glaeser, an economics professor at Harvard said, "The deduction increases the amount spent on housing, but it has almost no effect on the home ownership rate." Instead, what the subsidy has done, according to the New York Times article, is encourage people to build and buy bigger and more expensive houses.

Joel B. Slemrod, the director of the Office of Tax Policy Research at the University of Michigan said, "At the high end it reduces demand and will probably push prices down. For low-end housing, it could go the other way around."

Overall, the Tax Panel's recommendation, if adopted, could result in more Americans filing short tax forms (1040A and 1040EZ). Simpler taxes for all, a more even spread across income and wealth brackets, more affordable housing -- these all sound like the right direction. According to an executive at Taxhead.com, an online tax software and e-file company, "As a side benefit, but an important one, if taxes are indeed simplified, more Americans will be able to prepare and file their own income tax returns. Rather than spending hundreds of dollars on paid preparers like H&R Block, Jackson-Hewitt, and Liberty Tax, more Americans will be able to prepare their own taxes. With this, people would better understand, and be more accountable for their own financial and tax situations. It's a move toward a learning and learned population of tax payers. Accountability at the home level, the personal level."

Today, the IRS E-File system together with a broad range on online tax software products allow many people to prepare their own taxes. Many of these online tax software programs are free, or offered for a nominal cost. Tax services like www.Taxhead.com offer online tax software for free and charge a small fee for eFile.

The IRS, with its E-File system, and online tax software companies are ready to help millions of American tax payers file taxes more simply, more quickly and themselves.

The Taxhead.com executive added, "Perhaps with new tax code laws adopted, the U.S Government will also help move more Americans toward financial accountability, self-prepared taxes, more affordable housing for more people, and a fairer spread of the riches of America across all Americans."

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