"I would essentially throw out the entire tax code, along the lines of the Bowles-Simpson recommendation. Get rid of the vast majority of the exemptions, credits, and loopholes. I would keep things like the home mortgage interest deduction, the charitable credit and the [research and development] credit. But simplify it and dramatically lower the rates. I think we'd have a far fairer system."
The Context: In the interview with US News, Pataki covered a variety of topics including laying out his stance on the American tax code. In addition to this short list of credits and deductions he would like to maintain, he would "suggest that we have a tax rate on manufacturing that is the lowest in the developed world" and implied a similarly substantial cut to the overall corporate tax rate.
The Bowles-Simpson recommendation: Pataki and other candidates consistently use the Bowles-Simpson plan as a benchmark against which to compare or measure their tax proposals. The plan has gone through revisions over the last few years, with each proposal to the National Commission on Fiscal Responsibility and Reform made in an effort to reduce the national deficit through combinations of cutting discretionary spending, increasing tax revenue, reducing entitlements (both military and civilian), and raising the retirement age for social security. With each iteration, the plan has been contentious, with praise and criticism coming from both major parties for different elements of the plan. For additional reference and examples of the debate, see here, here, here, and here.
Part 1 of 2
Taxing is easily the most fundamental and common question the candidates must address—from what is taxed and who is taxed to how much to tax and why we're taxed (or how that money is spent). Among the many deductions and credits available to taxpayers, some are framed as supportive policies which recognize that families live in different circumstances such as deductions for dependents. Others are framed as incentives to encourage certain purchases or behaviors, such as credits for investing in energy-efficient home improvements. Then there are those that arguably sit in both categories. Of these, the Home Mortgage Interest Deduction is the largest, probably the most popular, and still possibly the most contentious (see here, here, and here).
Advocates for the deduction argue that it is an important and successful policy to support struggling middle-class families, helping to offset the cost of homeownership particularly following last decade's foreclosure crisis. Opponents argue that the largest benefits go to the already wealthy and that the deduction incents unsustainable and unaffordable purchases. Advocates claim that it enables the stability and social mobility that accompany homeownership. Opponents claim that —following the money—it redistributes funds from the taxpayers in aggregate (many of whom are renters) to banks through individual homeowners, funds which could otherwise be applied to everything from schools to the military or not included in the federal budget in the first place. Most agree, however, that the mortgage interest deduction is the country's most substantial and far-reaching housing policy and that, as policy, it prioritizes borrowing and ownership over other alternatives.
Thinking about the costs and benefits of the interest deduction is a complicated question. Estimates of the total cost of the deduction vary from year to year and (in recent years) range from about $70 billion to a little over $100 billion. These numbers are generally reported as nationwide statistics and so do not describe where this money is going. As candidates discuss which taxes should be cut and which deductions should be given, we must start by considering which taxpayers might benefit from each of these proposals. In the case of the Home Mortgage Interest Deduction, the first step is to ask
How much money are we talking about? And Where are high (and low) interest payments made?
Tomorrow, we will contextualize mortgage interest payments further and think about them relative to income levels. With a series of perhaps surprising maps, we'll ask