Wednesday, December 12, 2012

Your tax loophole may be my lifeline

We're being told that to avoid a fiscal plunge on Dec. 31 Congress may have to repeal some tax deductions cherished by middle-income families (including my own). This has been buzzed about for several days now as Speaker Boehner tries to save his dignity and his job leading the post-election House while coping with the newly empowered White House. In this process most Republicans and many others are making careless use of the word "loophole" -- which in its historic usage meant an overlooked or craftily obscured provision in law that could be exploited by the few who knew the secret.  In that sense my mortgage interest deduction is no loophole.

You've heard of the computer programmer who, told that his software had a bug, replied,  "That's no bug, that's a feature."  Real loopholes really are bugs in the tax code, working to subvert the law.  Deductions of the sort we're hearing the most about -- for mortgage interest, higher education, extraordinary medical expenses or an employer's health insurance for his workers, to name a few -- are ways to accomplish a worthy social goal while paying for the nation's defense and other public needs.

I have no doubt that taxpayers with good lawyers and accountants have exploited deductions beyond their intended purpose.  Think of the millionaires getting a break not only on the roof above their children but also their ski lodge or palace by the sea.  There's an interesting  discussion of that today in Atlantic Cities.  There, Emily Badger finds it troubling that so much of the mortgage benefit is enjoyed in our coastal metropolitan areas.  I think that the regional clustering of benefits occurs largely because talent gravitates to big cities, which increases property values.  And once values have risen, who's to say that an engineer in Silicon Valley shouldn't be able to buy a home as good as his peers in Pensacola who probably take home half the pay the Californian does?  The way to make the mortgage deduction fair, then, should be to deny it to vacation homes and to peg it to prevailing property values in the taxpayer's community.  Define "community" broadly enough that we won't be subsidizing Singer Island.

Florida may indeed have roomier houses than we need, at the higher end.  I'm mindful of one developer who sought permits to put up four-bedroom houses while telling planners there would be zero impact on neighborhood school enrollment.  Tax law probably isn't the best way to deal with that, but zoning rules might help. 

Want further reading?  I recommend Eduardo Porter's column in today's New York Times.

I'm back!

I've been away for a while as I poured my energy into Green Mobility Network. I still support their efforts but after five years at the helm I plan to be doing more of my own thing now. Ahead are my thoughts and discoveries about things in the public realm that matter to me and, I hope, to you. It feels good to be back!