The candidate has a new tax plan that is designed to raise as much money as the current system. It lowers tax rates in return for getting rid of the mortgage-interest deduction, the child tax credit, the exclusion of employer-paid health insurance premiums, and many other tax breaks. It’s going to sound very appealing to a lot of conservatives — at least, to those who have any interest in what Huntsman has to say.
But here’s the problem. The tax code, when combined with entitlements as now structured, overtaxes parents, and the child credit only partially offsets that effect. By abolishing the credit — a legacy of the Gingrich Congress and the Bush administration — Huntsman would be taking a step away from neutrality and toward a perverse form of social engineering.
And while we don’t know all the details it seems highly likely that the net result would be a higher tax bill for most middle-class parents, also known as Republican voters. Attacking the financial interests of your own side’s voters is praiseworthy only if it is in the service of good policy.
Assuming that is, in fact, Huntsman's side.
Reply to this commentLinkReport Abuseseems like good policy to me! if we need more kids to pay the entitlement costs down the road, why not loosen immigration restrictions instead of giving up tax revenues to subsidize american baby-making?
Reply to this commentLinkReport AbuseThis is why Huntsman is on the fast track to nowhere. If I want a milquetoast Republican, I'll vote for Romney - at least he tries to talk the talk.
Reply to this commentLinkReport AbuseAnyone who proposes a plan that "lowers tax rates in return for getting rid of the mortgage-interest deduction, the child tax credit, the exclusion of employer-paid health insurance premiums" is "milquetoast"?
Reply to this commentLinkReport AbuseAny politician who proposes ending the mortgage deduction is dead in the water, and rightfully so.
Most of the people in this country who have bought houses have done so in a system in which mortgage interest was deductible. If you take away that deduction, you pull the financial rug out of people who budgeted their entire life in good faith on the existing tax code. The only way you could EVER pull something like this off would be to pass the law today but include an implementation date 30 years down the road. Anything else would be political suicide, and anyone with a 30 year mortgage would be justified in tarring and feathering the s- o- b-.
Reply to this commentLinkReport AbuseRamesh - Fair point about the child tax credit; that may be the one tax expenditure worth defending. But hasn't Huntsman basically followed the blueprint of the Ryan budget with this plan? I.e., a revenue-neutral, rate-reducing, tax expenditure-eliminating, pro-growth tax reform? You say it's "highly likely" this will increase the tax bill on middle class parents; would that still be true if the child tax credit were kept intact? If it would, then what would you suggest to avoid this result? Haven't we, as a party, all gotten behind the concept, if not every detail, of what Huntsman has offered here?
Reply to this commentLinkReport AbuseHe should keep and indeed expand the credit, and go slow on phasing out the mortgage deduction.
Reply to this commentLinkReport AbuseWho cares what Huntsman has to say. He is going nowhere and his joke of a candidacy is obviously just a pathetic ego trip.
Reply to this commentLinkReport AbuseOn the one hand, you are undoubtedly right. The tax credits do benefit us.
On the other hand, the mortgage interest deduction and the deduction for state and local taxes overwhelmingly benefit high cost blue states. Wouldn't it be nice to stick it to them?
I did a calculation the other day, and the mortgage interest, child tax credit, and deduction for state and local taxes saved me 90% on my taxes. In previous years, they have saved me 100%.
It just seems to me that there are so many perverse incentives in the tax code, let's get rid of all of them. Yes, some Republicans will be hurt, but some Democrats will be as well.
Reply to this commentLinkReport AbuseSo you are admitting to being one of the 47% of the people who don't pay federal income tax. That's great!
Reply to this commentLinkReport AbuseYes, in the past I have been one of the 47% that paid no taxes. 4 kids, a big mortgage, and Illinois taxes will do that for you.
Reply to this commentLinkReport AbuseIn other words you were not an unproductive leach, a lazy welfare queen, or a drag on our job creator class. Rather, for a time, your wages were such that between a mortgage, kids, and state taxes your federal income tax burden happened to be zero.
I think especially during this recession, there are a lot of that 47% that might fall into this scenario.
Reply to this commentLinkReport Abuse"Rather, for a time, your wages were such that between a mortgage, kids, and state taxes your federal income tax burden happened to be zero."
Or stated differently, all the incentives in the tax code lead you to make malinvestments. Am I'm not talking about the kids. The home mortage interest deduction incentivizes debt. Without the deduction, people would most likely wait and put more money down on the mortgage (what a concept). I say phase it out over 5 years at 20% per year. It's fun to see Huntsman propose cleaning up the tax code and lower overall rates and watch ramesh squeal about his favorite deduction (or credit in this case). With the tax code cleaned up, people will change their behavior back to a what it most likely would have been if the rent seeking lobbyists wouldn't have paid for all the deductions in the first place.
Reply to this commentLinkReport AbuseAMT repeal helps same people state and local tax deduction helps--roughly a wash. I think you may be wrong about who benefits from the mortgage deduction. Of course the partisan impact is a secondary concern!
Reply to this commentLinkReport AbuseNobody is paying any attention at all to Huntsman. He is the biggest non-factor in this race.
Reply to this commentLinkReport AbuseAnother one of Ramesh's hobby-horses. The tax code does not overtax parents. Each individual will be, over the course of his life and on average, flat with respect to his net contributions to and benefits from the entitlement regime. Today's child will indeed contribute to tomorrow's retiree. But tomorrow's child will contribute to today's child. And yesterday's child will contribute to today's child's parents. Having a child is not, ceteris paribus, a benefit to other people. It's neutral.
On the politics, Ramesh may well be right. But on the policy, Huntsman's plan is terrific (although I'd prefer to get rid of the corporate income tax and increase taxes on dividends and capital gains to OI levels, rather than the other way around).
Reply to this commentLinkReport AbuseI say this with no love for Huntsman, but this is one of Ramesh's weak spots: an affinity for social engineering with the tax code from the right, or family friendly, side.
The purpose of a tax code is to collect revenue. If you are conservative and free market oriented, it ideally should be one that does as efficiently as possible from the standpoint of incentives for economic growth. But Ramesh is more concerned with, to be less than charitable, so-con tax pork.
Reply to this commentLinkReport Abuse"The purpose of a tax code is to collect revenue."
This. Too many on the right enthusiastically embrace tax policy for social engineering purposes, either to discourage what they dislike ("sin taxes") or promote what they like (mortgage deduction). This invariably introduces market inefficiencies and perversions, and creates additional tax compliance/enforcement costs. For example, the mortgage deduction artificially inflates home prices.
I'm bought a home on 100% financing in 2005, so I am a hardcore beneficiary of the mortgage interest deduction. But I completely embrace a "revenue neutral" reformation of the tax code that eliminates these sorts of social engineering policies. As long as implementation is gradual - to allow people to prepare for the change - this is a great idea.
Reply to this commentLinkReport AbusePerfectly stated.
Reply to this commentLinkReport Abuse"The purpose of a tax code is to collect revenue" seems to me incomplete without adding "while doing the least to distort decisions." Not just decisions to work, save, and invest, important as those are, but decisions to have kids as well.
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