ARTS & FARCES internet

The President’s Advisory Panel on Federal Tax Reform has issued a report that calls for limits on the home mortgage interest tax deduction and deductions for employer-provided health insurance. The nine-member panel’s final report is due on 1 November.

The mortgage interest cap for a married couple filing a joint tax return is currently US$1 million. The panel advises that a much lower cap—US$350,000, or the maximum mortgage insurable by the Federal Housing Administration—would be more appropriate. Additionally, the panel calls for capping the deduction for employer-provided health insurance at about US$11,000 per year per employee.

The panel appears to be rejecting the idea of a consumption tax—in the form of a national sales tax or a European-style value-added tax—because it would hit the working poor much harder than any other class. A flat tax—which similarly falls disproportionately on the poor—is still in reportedly in play, according to David Rosenbaum’s account in the New York Times.

Meanwhile, the panel recommended that tax deductions for charitable deductions be increased. But the real reason for capping the home mortgage interest—which would not affect the middle and lower classes—and employer-provided health insurance tax deduction—which would hit mostly the middle and lower classes—is to pay for the elimination of the alternative minimum tax. The alternative minimum tax was instituted to make sure that the super-wealthy could not avoid paying at least some income tax, but the Bush administration is concerned that the tax has begun hitting the merely very wealthy.

Lowering the mortgage deduction cap is a good idea eminently worthy of exploration; the Times report cites a Congressional Budget Office report earlier this year that found that a US$500,000 mortgage deduction cap would raise US$48 billion over ten years.

Capping the deduction for health insurance, however, is a nasty bit of work. My wife and I currently pay more for health insurance than we do for our mortgage; the latter is something for which families have been planning for generations but the former was totally impossible to plan for and took us, and many others, by complete surprise. To add a tax deduction cap on top of that little surprise would be unthinkably cruel. And the rationale behind the scheme, namely that workers demand “overly generous insurance” leading to increased health costs is laughably fraudulent.

This is nothing short of a plan for the conservatives’ closely-held dream of abolishing the progressive income tax, the fairest tax of all. Ironically it’s in direct violation with one of the core purposes of the panel: to “share the burdens and benefits of the Federal tax structure in an appropriately progressive manner….”