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Bush Panel may curb tax breaks for Homeowners and Employers who provide Health Care Benefits

 
Anonymous Coward
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10/12/2005 06:10 AM
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Bush Panel may curb tax breaks for Homeowners and Employers who provide Health Care Benefits
Bush Panel May Curb Tax Breaks for Homeowners, Health (Update3)



Oct. 11 (Bloomberg) -- President George W. Bush磗 tax advisory panel, rejecting a fundamental overhaul, agreed to recommend limiting tax breaks for homeowners and employer- provided health-care benefits to help pay for repealing the alternative minimum tax.

The panel, meeting in Washington today, agreed the current $1 million cap on deductible mortgage interest should be reduced, possibly to about $350,000, and that the deduction should yield no more than a 25 percent tax savings, down from a top savings now of about 35 percent.

The panel also said it would probably recommend capping tax deductions for employer-provided health-care plans. Current law allows employers to deduct the value of premiums paid on behalf of their workers without the benefit being considered taxable income to the employee. The panel discussed placing the cap at the maximum amount the federal government pays in premiums for its workers, currently about $11,000.

``These are the things we磖e looking at,创 said panel Vice Chairman John Breaux, a Democrat and former senator from Louisiana. ``We have a concept. We know where to go. We just don磘 have the details.创

Both changes would preserve the incentives for lower-and middle-income workers while curbing them for wealthier Americans who are getting a disproportionate benefit, panelists said.

Breaux said such ``tough choices创 would raise ``a generous amount创 of taxes to help offset the $1.3 trillion cost of repealing the alternative minimum tax, he said. The minimum tax, imposed in 1969 to ensure that 200 wealthy families didn磘 escape tax with excess deductions, is now forcing millions of middle- income families to pay higher taxes because it was never indexed for inflation.

No Sales Tax

The panel decided not to endorse a national sales tax in its final recommendations and most panel members expressed reservations about a European-style value-added tax, which is in place in most industrialized countries.

Both systems would disproportionately hurt the poor, panelists said, and some members such as Chairman Connie Mack, the former Republican senator from Florida, and former Minnesota Representative Bill Frenzel said they worry a value-added tax would make it too easy for the government to raise money and increase spending programs.

Mack asked the panel磗 staff to devise a specific proposal that would layer a value-added tax on the current system and reduce individual and corporate income tax rates.

Still, he said that as the panel磗 work begins to wrap up, it磗 looking more and more to making changes within the current system.

Value-Added Tax

``We磖e getting focused down on the income tax here,创 Mack said. In a later interview, he added, ``I would be surprised if we were to conclude that we want to offer a value-added tax proposal to the president.创

The panel increasingly is looking to eliminate or restrict tax preferences already embedded in the law. David Walker, the head of the Government Accountability Office, said Sept. 23 that uncollected revenue because of the incentives tripled since 1974 to $730 billion. The biggest embedded tax breaks subsidize housing and health care, Walker said.

The details of the mortgage interest and health care proposals will be ironed out next week, Mack said. He said the proposals are ``clearly redistributing创 the tax benefits for homeownership and health care to lower-income Americans.

Lower-Income Homeowners

Tax breaks for homeownership particularly help the wealthy while lower-income people don磘 get enough benefits, said panelists such as Liz Ann Sonders, the chief investment officer at San Francisco-based Charles Schwab Corp. The current incentives, including the fact that most home sales are tax-free, are driving up home prices, making them unaffordable or pushing lower-income borrowers to take out risky mortgages.

``We are starting to see some significant pain here,创 Sonders said.

The panel agreed to a proposal by former IRS Commissioner Charles Rossotti to make it easier for lower income Americans to get a tax break for donating money to charity.

Investment Income

The panel may compensate wealthier Americans who lose some of those benefits by reducing or repealing taxes on investment income. Mack said that proposal would be discussed at the panel磗 final meeting on Oct. 18. The panel is due to make its final recommendations to the Treasury Department by Nov. 1. Its report will serve as a blueprint for a comprehensive proposal by Bush to overhaul the tax code as early as next year. Bush appointed the nine-member panel in January.

Panel member John Poterba, a professor at the Massachusetts Institute of Technology in Cambridge, presented a subcommittee磗 findings on the ramifications of changing to the mortgage interest deductions. Reducing to about $300,000 or $350,000 the cap on mortgage interest deduction and limiting the tax savings yield would preserve the benefits for the middle class, he said.

A person who takes out a mortgage that exceeds the cap would lose deductions on excessive amounts, while those in top tax brackets would only get a maximum 15 or 25 percent deduction, depending on where the panel ultimately sets the cap. Panelists also discussed converting the deduction to a credit, which would allow the 70 percent of Americans who don磘 currently itemize to claim the break for the first time.

Transition Period

Poterba suggested, and other panel members agreed to recommend, an extended transition period during which homeowners could take advantage of laws as they existed when they bought their homes ``so we磖e not changing the rules of the game for people out there.创

Linda Goold, a lobbyist at the National Association of Realtors in Washington, said the panel is wise to consider an extended transition period if it changes tax incentives for homeownership ``as any change is likely to have a winners and losers effect.创

She said the group was reserving judgment on the panel磗 recommendations until a final report is issued, but said it is concerned that lowering the mortgage interest cap may have an uneven impact around the country, hurting states like California that have higher housing costs more than those with more affordable housing, such as Indiana.

Earlier, the panel agreed to curb tax preferences for employer-provided health care.

Former Federal Trade Commission Chairman Tim Muris, a member of the panel, said the change would end subsidies that favor wealthier Americans. If adopted, the change would increase taxes on workers whose employers provide them health plans that are more valuable than those offered government workers.

`Subsidy

``It obviously means that the incentive -- the subsidy if you will -- to take a policy above the cap will be removed and therefore there will be people who will be much more sensitive to that,创 Muris said.

Tax preferences for health care are the largest incentives in the current tax code, and American workers will save $1.9 trillion over the next decade by avoiding taxes on the value of their employer-provided premiums.

There is no consensus about whether to also restrict the deduction employers take for providing coverage, Breaux and Mack said after the meeting.

``How can you do it one way and not the other?创 Breaux asked.

Breaux said he realized both proposals may lack political appeal in Congress, though he said that wasn磘 the panel磗 concern. ``Our job is to make bold proposals without regard of the politics,创 he said.

Mohit Ghose, vice president of public affairs at America磗 Health Insurance Plans, a trade group in Alexandria, Virginia, said a recent poll of 400 people commissioned by his organization concluded voters want to preserve tax preferences for health care.

``Voters are sending a very clear message that they do not support changing the tax status of employer-sponsored or employer- provided health care.创



To contact the reporter on this story:
Ryan Donmoyer in Washington at rdonmoyer@bloomberg.net.

[link to www.bloomberg.com]
Anonymous Coward (OP)
User ID: 3160
United States
10/12/2005 06:11 AM
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Re: Bush Panel may curb tax breaks for Homeowners and Employers who provide Health Care Benefits
Time to screw his own voting base now. Afterall he doesn磘 need them anymore. Same with the farmers and their looming lost subsidies.

The only ones left with tax breaks are the Ultra-wealthy.

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