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Debate about deductions

By Holden Lewis · Bankrate.com
Wednesday, October 17, 2012
Posted: 12 pm ET

When Candy Crowley selected the questioners for last night's presidential debate, she didn't pick anyone who wanted to know what the candidates plan to do about the housing mess. But housing was mentioned, briefly, in an answer to a question about tax reform.

Nervous Mary Follano asked Mitt Romney about his plan to reduce tax rates and eliminate some deductions to make up for the loss in revenue. She mentioned the mortgage and charitable deductions, as well as tax credits for child care and education.

After a 212-word preamble, Romney answered the question, sort of: "And so, in terms of bringing down deductions, one way of doing that would be, say, everybody gets -- I'll pick a number -- $25,000 of deductions and credits, and you can decide which ones to use. Your home mortgage interest deduction, charity, child tax credit, and so forth, you can use those as part of filling that bucket, if you will, of deductions."

Two weeks ago, in a TV interview, Romney used similar language about filling buckets. That day, the number he plucked out of the air was $17,000.

Right now, there's a standard deduction of $5,950 for single filers, $8,700 for heads of households and $11,900 for married couples filing jointly. If your deductible expenses (for things such as mortgage interest, state income taxes and medical expenses) are less than that standard deduction, then you just take the standard deduction and don't itemize.

Basically, it sounds like Romney proposes increasing that standard deduction to $25,000 or $17,000 or whatever number Congress would agree to. And that would be it -- no itemizing, no Schedule A.

About two-thirds of tax filers use the standard deduction, according to the Internal Revenue Service. Raising the standard deduction to $17,000 or $25,00 (or whatever) wouldn't affect those filers. Raising the standard deduction wouldn't reduce their taxes (although Romney's plan includes a cut in tax rates, which would reduce taxes paid).

Under Romney's proposal of raising the standard deduction and eliminating any tax deductions above that, the losers would include people who pay a lot of mortgage interest and (probably) state income taxes. I would assume that Californians and New Yorkers would be hit hardest because their mortgages are bigger. That's what they get for living in blue states, I guess.

President Barack Obama didn't mention tax deductions in his answer, although he spoke of tax credits: "I think what grows the economy is when you get that tax credit that we put in place for your kids going to college. I think that grows the economy. I think what grows the economy is when we make sure small businesses are getting a tax credit for hiring veterans who fought for our country." Beyond that, he proposed raising income tax rates on filers who make more than $250,000.

Neither candidate wanted to talk about housing. They could have. In response to a question about gun violence, Romney went off on single-parent families. Both candidates are adept at changing the subject so they can talk about their pet issues. Foreclosures, tight mortgage-lending standards, the fate of Fannie and Freddie -- neither candidate thought those problems were important enough to bring up. They live in comfortable mansions, and I guess our problems seem kinda small.

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