Mortgage Deduction maximized under the Fair Tax

In the arena of tax policy and tax reform the income tax deductions for Mortgage interest seems to be cast in stone and never to be touched. This is the one tax deduction every homeowner knows to include in his tax return and a benefit that the President has asked his tax reform panel to keep.

Unfortunately, one Huge and growing tax issue hanging over the mortgage deduction is the Alternative Minimum Tax ( AMT). A tax hitting more and more Middle Class Americans where their Tax Accountant has to figure out their taxes 2 ways. Because AMT has not been adjusted for inflation, Teachers, Policemen and other working families are finding they have enough legitimate deductions to get a nice refund but the AMT kicks in and they get no refund but owe money.

AMT repeal or adjustment requires a major offset to maintain revenue neutrality. One consideration is the elimination of the Mortgage Interest deduction or the elimination of the local property tax deduction. Democrats see this as an attack against Blue States because the Property tax issue affects Blue States more than Red States.

Both issues and many others can be solved if our politicians and American Families can get out of an "Income Tax" mentality and be open to a new way of improving the lives of American Families and still providing consistant revenue for to the national treasury.

Supporters say there is only one tax reform package that meets the goal for home ownership; maximizes the mortgage deduction in a new way and does away with the AMT; It is the The Fair Tax Legislative package as House Bill HR 25 and Senate Bill S25.

Historically, the actually Mortgage interest dedcuction benefit has diminished under the archaic income tax code. As income tax brackets have lowered and interest rates have lowered so has the amount of dollars you get back from your mortgage interest deduction.

The Tax payer in a 25% federal tax bracket faithfully files a return on or before April 15th to get a deduction which only gives him back $250 of his own money back per $1,000 spent in Mortgage interest. When upper tax brackets used to be 50% to 70 % Americans would get back even more. Keep in mind the deduction is a means to get back some(25%) of YOUR money back from the Government. However, the 7.65% Americans pay out in payroll tax provides no deductibility or return at all.

In addition, American families still have to pay the mortgage principal out of after tax dollars. For many middle class Americans that includes a 25% federal income tax and a 7.65% payroll tax for a total federal tax bite of 32.65%. On a $100,000 mortgage at 6% a family might get back $1500 with a mortgage interest deduction but you get no deduction for the principal paid. You pay that with after tax dollars.

There is a Tax Reform package in Congress that would maximize the Mortgage deduction in a totally new way with added benefits for families and home ownership.

Under the Fair Tax, American workers get 100% of their paychecks with no payroll tax or income tax taken out. The 32.65% they had subtracted each week is now in their pockets to help pay the principal on their mortgage or any other important family needs. You end up with the income tax equivalent of a 100% deduction of principal and interest by replacing the income tax and the IRS with the Fair Tax.

Keeping the 32.65% is the same as an increase of your take home pay of over 48%.
The Fair Tax reform package is well documented and researched on the Fair Tax website www.fairtax.org.( FAQ, Research, Rebuttal sections) It has been reintroduced in the 109th Congress as HR25 and S25.

The Fair Tax legislative package first eliminates the current income and payroll tax system on American families and American business.

Elimination of hidden business taxes will first cause prices to drop 22 to 25%. The Fair Tax than adds in a federal retail sales tax of 30% (equivalent to income tax of 23%)on new reatail products and services. American consumers will pay about the same as they did before but take home a much larger paycheck ( by 30 to 50 %).

The Fair Tax applies to new house construction but not pre-owned homes. For Builders their costs to build will drop an average 25% so when they sell a new House with the Fair Tax added in (23% inclusive) it will be about the same as it is now.

American Families will be able to afford that new house much more easily with a 30 to 50 % increase in take home pay. American Families will be able to save for a down payment more quickly.

The Fair Tax is revenue neutral, bringing in the same revenue as current income taxes, Social Security taxes and Medicare taxes.

In addition, the package has a Prebate system so that every family receives a monthly check at the beginning of the month to cover Sales tax on all purchases up to the poverty line. For a married family of 4 the poverty line is $25,660 and they wil receive a monthly check of $492/m. No receipts, no filing monthly forms.

Talk show host Neil Boortz has put out an informative and witty book recently called "The Fair Tax Book" which gives you the background on this well researched package which has been promoted by Americans for Fair Taxation, the NTU- National Tax payers Union and others for several years; and more recently by 75 national economists from around the country.

Neil's Book is on the New York Times Best Seller's List for Non-fiction.

Petition signers at www.fairtax.org are continuing to grow with a goal to rich One million.

For a great Fair Tax calculator visit;http://www.pafairtax.org/calc.phpand see how the Fair Tax helps your family.

If you want tax reform that is revenue neutral, eliminates the AMT, gives you more take home pay and a maximized Mortgage deduction for interest and principal than call your Congressmen and Senators and tell them you support the Fair Tax Legislative package HR 25/ S25. For more information visit www.fairtax.org and read the FAQ section.

Fair Tax wins CNBC Poll 74% to 26%

CNBC's Kudlow & Company hosted by Larry Kudlow held a short debate or discussion of the Fair Tax and the Flat Tax on Wednesday nights show. Larry encouraged viewers in the first half hour to go on line and enter their opinion on whether they liked a 17% Flat Tax or the 23% Fair tax.
As of the close of the poll 2952 votes were cast and the Fair Tax Won 74% to 26%.
The Discussion included Radio Talk Show Host Neil Boortz and Wall Street Journal contributor Stephen Moore.

I wrote an article in january in response to his support of the Flat Tax:
http://fairtaxreform.blogspot.com/2005/05/zero-income-tax-and-zero-payroll-tax.html


Neil started the discussion with a fun jab at Stephen Moore and said, Let's declare the winner by who has the highest sales and ranking on the NY times Best Seller List.
Neil Boortz's Book "The Fair Tax Book" is currently #1 and Steve Forbes's Book on the Flat Tax(which Moore supports) is far behind.

Stephen Moore pointed out that the popularity of both books shows that the American people are very interested in changing the current system to something new and not just tinkering around the edges of the current Income tax code.

Stephen and Larry also discussed that their sources had indicated that the President's Tax Reform Panel will not recommend major reform in its report at the end of September but only suggest minor changes in the current code.

This certainly flys in the face of the popularity of the Fair Tax and the disgust the American people feel toward the IRS and the complicated tax code that requires a tax accountant to prepare.

What is required is a ground swell by the public in support of the Fair Tax. Much Like the problems on the Border with Mexico and illegal immigration, it takes the public demanding change to push politicians to action.

The Fair Tax certainly won the debate last night and that is inspite of the fact that the poll question was misleading in favor of the Flat Tax.

You see the 17% Flat tax still leaves in place the payroll tax of 7.65% for a total rate on income of 24.65%.

The Fair Tax replaces both Income and payroll taxes with a 23% Inclusive sales tax rate.

If the Poll asked;
Do you want a Flat Tax with a total 24.65% rate OR
Do you want a Fair Tax with a 23% Rate on Purchases?
I am sure the results would have been even better.

For an honest poll see this article repeated with a poll at RedState.org
http://merrill-bender.redstate.org/story/2005/8/25/15831/5293

For more information on the Fairtax read the FAQ section of www.fairtax.org

and read " Give Every American Family a Raise"
http://fairtaxreform.blogspot.com/2005/02/give-every-american-family-raise.html

Fair Tax Aims for 100 Congressional Sponsors

Supporters of the "Fair Tax" legislative package are working to have at least 100 Congressmen and Senators signed on as sponsors of Fair Tax bills during the current 109th Congress. With The President's Tax Reform Panel reporting at the end of September, the Tax Reform debate will kick into high gear. Indications are that a National Sales Tax(Consumption Tax) will be one of the final recommendations. The Fair Tax Legislative package is already ahead of the Washington Game with 38 Co-0Sponsors and shooting for 100.

According to the FairTax Grassroots Director, Genie Hayes, “The best way to get cosponsors is through the grassroots efforts within Each Congressional District. Congressmen respond to their constituents when they call and ask for tax simplification, reform and relief from an archaic and burdensome tax code”

The Fair Tax is a complete Legislative package that replaces federal personal, gift, estate, capital gains, alternative minimum, earned income, Social Security/Medicare, self-employment, and corporate taxes with a national sales tax. It would include a rebate system to make the Fair Tax a progressive tax system where the net effective rate for low- and middle-income persons is less than the effective tax rate for the wealthy.

Georgia Lawmakers Take Lead

The Fair Tax bills—House Bill 25 and Senate Bill S25—are sponsored by Rep. John Linder (R-GA) and Senator Saxby Chambliss (R-GA).

HR 25 was originally introduced in the 106th Congress by Linder and Rep. Collin Peterson (D-MN). In the 108th Congress, there were 56 co-sponsors in the House and Senate.

In an indication of leadership support for the Fair Tax, Linder has been moved from the Rules Committee to the powerful, tax-writing Ways and Means Committee. House Speaker Dennis Hastert (R-IL) expressed support for a national sales tax- last sumer in his book, Speaker: Lessons from Forty Years in Coaching and Politics.

House Majority Leader Tom DeLay (R-TX) is a co-sponsor of HR-25

On March 3, Federal Reserve Chairman Alan Greenspan told a presidential tax reform panel that a consumption tax “could certainly meet the fundamental criteria of being simple, fair and pro-growth.”


Grassroots Supporters Arise

The legislation is based on work sponsored by a grassroots organization called Americans for Fair Taxation (www.fairtax.org), which spent more than $22 million in marketing and academic research and in the last five years has grown to more than 560,000 supporters. The organization has 280 congressional district directors across the country working hard to organize local support for the legislation.

"Just like taking down the Berlin Wall, we will end the worst, most invasive tax ever devised and replace it with a simple, transparent, progressive, national retail sales tax," said FairTax.org's Executive Director, Tom Wright

Hidden Tax Costs Eliminated

Calculations conducted by several nationally known economists, including Harvard University's Dale Jorgensen, conclude the Fair Tax package would eliminate tax costs that currently are hidden in retail prices, taxes that which add up to some 22 to 25 percent of the cost of retail goods. The analysis is covered in more detail in the research section of the Fair Tax web site. Dr. Jorgensen has testified before the House Ways and Means Committee and written numerous articles and papers on the subject (“The Economic Impact of Fundamental Tax Reform, Dale W. Jorgenson, Testimony before the House Ways and Means Committee, June 6, 1995. “Looking Back to Move Forward: What Tax Policy Cost Americans and the Economy.)

After the pre-tax price drop of 22 to 25 percent, the Fair Tax plan adds on a retail sales tax of 30 percent. According to Wright, a consumer would end up paying only a little more than they pay now for products and services, but would have a significantly larger take-home paycheck, free from federal income and payroll tax deductions.

Wright said this is a key fact that is often missed by many people, who make the mistake of thinking the tax would be solely an add-on to current prices.

Wright said. "The Fair Tax is a revenue-neutral proposal that grows the American economy an estimated 10.5 percent in the first year while creating jobs for American manufacturing workers."

Exports Wouldn’t Be Taxed

A key factor in the pro-growth component of the Fair Tax package, according to supporters, is that there would be no taxation of American exports. With the elimination of business taxes and compliance costs on American manufacturing, American-made products will be 22 to 25 percent lower in price thereby making the goods more affordable in overseas markets. The Fair Tax package will increase exports; decrease the trade deficit and help fight against outsourcing by making American Shores a Tax-Free Zone for American Business.

Another key component of the Fair Tax package is a rebate to resident Americans with a legal Social Security number. This would wipe out any tax up to the poverty level as determined by the Department of Health and Human Services. The rebate goes to every family regardless of income level. No one will pay taxes on the necessities like food and medicine up to the Poverty line of spending.

Based on 2005 Health and Human Services poverty levels and updated rebate numbers from the Fairtax.org web site; A family of four would receive $492 per month, rebating all federal sales tax on spending up to $25,660. A couple would receive $367 per month and an individual $183 per month. Everyone would receive checks at the beginning of the month to cover the tax on basic necessities. A system of checks very similar to Social Security checks.

Unlike the flat income tax or a French-style value-added tax (VAT), the Fair Tax would entirely replace both income and payroll taxes with a broader-based tax that is revenue-neutral for the national budget, Social Security, and Medicare, and allows working families to take home 100 percent of their paychecks free of federal income and payroll taxes.

New York Congressman Charlie Rangel (D-NY) spoke out against Chairman Greenspan’s comments for supporting a national sales tax stating, “When you have a tax, where you pay the same tax whether you're wealthy or you're poor, …that's not fair."

Other critics of a National Sales Tax include William Gale (Senior fellow at the Brookings Institute), Bruce Bartlett (Senior fellow with National Center for Policy Analysis) and those that support competing proposals such as the French VAT or flat (income) tax. Karen Walby, Ph.D. – Fair Tax chief economist and Director of Research says “Comparisons to these proposals and rebuttals of the criticism are well covered at the rebuttal section of our web site.” ( www.fairtax.org) She points out that Mr. Bartlett and others typically ignore specific features of the Fair Tax that make the legislation much more comprehensive than just a national sales tax plan.

During Newshour on PBS ( March 3, 2005), William Gale acknowledged that a consumption tax could be modified to work, “… consumption taxes end up being more regressive than income taxes, although Len and I or anyone else could design a consumption tax on paper that wasn't like that.”

Dr. Walby argues that the Fair Tax – HR/25 goes far beyond the theoretical discussion of a generic consumption tax and provides a well-researched plan that is not regressive. Dr. Walby points out that Congressman Rangel and other Democrats have expressed their concerns over the regressive nature of the current flat rate payroll tax on the poor and she points out that the Fair Tax answers those concerns by eliminating the payroll tax entirely



Other Groups Lend Support

Additional support for the Fair Tax proposal has come from the National Taxpayers Union (NTU), with 350,000 members. The American Farm Bureau Federation (and its six million members) has adopted a policy statement on Tax reform that describes the Fair Tax components without naming the Fair Tax specifically. Their policy statement also excludes any form of flat income tax or value-added tax (VAT). Other organizations that directly sponsor the Fair Tax proposal include 60 Plus, the National Small Business Association, and Associated General Contractors.

In letters to both Rep. Linder and Sen. Chambliss, the NTU endorsed the current bill, urging all members of Congress to join as co-sponsors, saying, "the bill will be heavily weighted in our annual rating of Congress."