Pick Your Cliff: Part II, Loopholes

Financial loopholes are essentially ways of reducing taxes, especially by reducing someone’s income.  We might associate loopholes with millionaires hiding their wealth, but many benefit the middle-class.  I might not check off mining expenses or business equipment depreciation, but Schedule A has mortgage interest and charitable contribution lines to whittle away at my income for taxing.  Or, I might take advantage of pre-tax payroll reduction through 401k contributions and employer subsidized health care insurance payments.  One way to increase government revenue is to reduce or eliminate deductions or loopholes.  If you utilize these on your federal or state income tax forms, which are you willing to give up?

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About hermitsdoor

Up here in the mountains, we have a saying, "You can't get there from here", which really means "We wouldn't go the trouble to do that". Another concept is that "If you don't know, we ain't telling." For the rest, you'll have to read between the lines.
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8 Responses to Pick Your Cliff: Part II, Loopholes

  1. The Vicar says:

    Huh, tough list when it comes to thinking about what deductions to give up. I’m going to think about it and circle back. most of these decutions are meant to encourage certian behaviors or practices that through short term gain and long term benefit. The problem is when need for tax revenue out paces the growth that these dections are suppose to nurture.

    I remember buying our first home. Part of the calculation that went into “could we afford this home” was the increase in take home pay with the mortgage interest deduction reducing our taxable income. It was good for the housing industry because people that otherwise couldn’t afford a home were able to get established. It was good for neighborhoods becasue people that own homes tend to be more engaged in their communities. It was good for us becasue we didn’t constantly refinance and take equity out of our home, so it became an investment. But as we have seen with the housing bubble and banking crisis, home ownership at all costs can create financial instability as well. Each of these tax deductions has benefits, as well as drawbacks, and even unintended consequences.

    • hermitsdoor says:

      You have made my arguement for keeping the government out of the morality business through tax incentives. Maybe we shall address this during our discussion of Ephesians. 🙂

  2. The Vicar says:

    While tax exemptions for mortgage interest have benefits, they also has the potential to encourage debt. What would happen if nearly everyone (including our government) decided that debt was a acceptable? Oh wait, that has already happened.

    Romans 13:7-8 Give everyone what you owe him: If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor. Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.

    • hermitsdoor says:

      I believe that the element of debt that has been forgotten is the value that borrowing money allows. Your example of a home is illustrative. Few people can out-right purchase a home, especially as a newly-wed couple… unless you are Amish or Menonite with the community building a home for you… Purchasing a home can provide many of the settling and community aspects that you suggested. However, when living on credit becomes a lifestyle that is a pay-check away from bankruptcy, we have a problem.

  3. Barneysday says:

    May I throw out another thought, entirely, on the mortgage deduction? In reality, it really encourages buyers to buy “bigger” homes than they might otherwise qualify for. Assuming we are in the 15% tax bracket, which is pretty average. Then only $.15 cents of each dollar of mortgage interest really goes into our pocket via the tax deduction. Put another way, it allows us to spend $1.15 in interest, instead of $1. Buying a home, (Not counting VA loans, which are no down loans) we already have to pretty much qualify on our own for the home purchase, long before the mortgage deduction kicks in. So eliminating the deduction, might have the effect of lowering the purchase price of the home that we must already qualify for, and not encourage the origional purchase in the first place.

    Likely, engineering behavior via the tax code has not been a great success. See the mining and oil depletion allowances, for example. Companies have destroyed ecologies and in your area, water, forests and mountain tops, with such depletions.

  4. Chet says:

    I could not check any boxes, not because I am unwilling to give up deductions, but because I am really not familiar with the objectives of some of the deductions. I have long been of the opinion that the best way to close the loopholes is to just eliminate all deductions. It is really hard to admit this, as it will probably compromise my status as a bleeding heart liberal, but I don’t think a flat rate with no deductions is an unreasonable option.

    • hermitsdoor says:

      You are absolutely correct that a lot of deductions make no sense, unless you are a lawyer or CPA. I’m sure there are pages more of deductions that I do not even know about!

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