Tax Reform Already Getting Carved Up By Special Interests

WASHINGTON, D.C. – As House Republicans on Capitol Hill prepare to unveil their tax plan on Wednesday, the ambitious reform is already facing headwinds from special interests.

Most notably, lobbies for the National Association of Home Builders and National Association of Realtors are saying they will work against the bill because it doesn’t include special deductions or credits for mortgage interest or home ownership.

From the Washington Post:

“”We will do everything we can to defeat this thing,” said Jerry Howard, chief executive officer of the National Association of Home Builders.

[…]

Home builders are considered among the most politically influential groups, as they play a large role in the local economy for virtually every congressional district – and contribute millions to political campaigns. Lawmakers have frequently leaned in whatever direction the home builders have taken.

Howard and Brady’s aides spent weeks working together to add to the bill a “homeownership tax credit,” which essentially would have replaced the mortgage-interest and property-tax deductions, combining both benefits into a new tax credit.

Howard said home builders like other parts of the tax plan, such as tax cuts for businesses and lower rates for many families. But he feared that other changes could tip the housing industry into a recession. He was particularly concerned about ideas to eliminate the federal deduction for state and local taxes and doubling the standard deduction, which could remove incentives for all but the “very wealthy” to deduct their mortgage interest – and have a chilling effect on homeownership.”

This is exactly why it is so hard to truly reform the tax code – everyone wants a special exception, deduction, what have you, that benefits their particular industry.

Whether a mortgage interest deduction actually does increase homeownership is still up for debate, but the idea that getting rid of the deductions, while at the same time lowering rates and increasing the standard deduction would tank the home building industry on its own is laughable.

The only justifiable reason to have such deductions or credits is to be fair to the taxpayer and let him or her keep as much of their money as possible. The way the special interests and politicians talk about tax revenues as if it is the government’s money is insulting to the idea of private property that this nation was founded upon.

D.C. Republicans demonstrate their own disconnect as they float ideas to close the ‘revenue gap’ created by rate reductions.

“Republicans also appear poised to limit what American workers will be allowed to contribute pretax to their retirement plans – a change that stands to generate strong opposition. House Majority Leader Kevin McCarthy, R-Calif., suggested Sunday in a television interview that the GOP is instead looking to increase the limit on post-tax contributions as a substitute.

Currently, Americans can contribute up to $18,000 a year in pretax income to a 401(k). Those contributions are later taxed when withdrawn in retirement. But the GOP plan appears poised to reduce the pretax contribution limit – and increase limits allowed to post-tax accounts. Withdrawals from those accounts are not taxed, meaning the federal government would gain revenue in the short term as a greater portion of initial savings is taxed – but lose revenue in the long term.

McCarthy suggested in an interview Sunday that the GOP plan would be a boon to middle-class savers. “We’ll expand the amount you can invest, but we’ll also give you an option to not be taxed later in life, not to have that tax burden hanging over you but actually have more income in the future,” he said on Fox News Channel’s “Sunday Morning Futures.”

Other setbacks could quickly follow. The commercial real estate industry is wary of a proposal to eliminate or scale back the deductibility of corporate interest payments.”

First of all, the disappointing, but expected, emphasis on plugging revenue holes with more tax revenues is a perfect example of the majority of politicians being too weak and spineless to tackle the real problem – spending.

Second, why are there such arbitrary limits on retirement contributions at all, being that they’re taxed either on the front end or back end? Why does the government make such a decision for you?

Also, why would Republicans push a change that bakes in progressive taxation and legitimizes the Left’s argument that “the rich” can afford it, so they should pay more?

Over the next couple of weeks as the House reveals their tax plan and the Senate gets to work on their own, expect many more special interest groups to start their hyperbolic whining about losing their carve outs. Unfortunately, it is doubtful that the Establishment will pull themselves out of the Swamp to present a clean and transformational tax plan.

The top 20 percent of income earners – households that earn at least $76,000 – pay nearly all federal income taxes.

That’s not “the rich”; that is the middle class and up. A true reform of the tax code to bring it more in line with the principles the United States was founded upon would do more to reduce this burden on the most productive among us, while at the same time plugging the theoretical revenue holes by cutting spending and shrinking government.

But don’t hold your breath…