Raise Taxes on Whom?

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It’s hard to know what the Bush administration plans to do with this:

President Bush’s tax advisory commission indicated on Tuesday that it would not propose replacing the income tax with a national sales tax or a value-added tax, but would recommend limits in the popular tax deductions for mortgage interest and employer-provided health insurance.

Interesting. Depending on how that mortage-interest deduction gets phased out, a lot of home values could end up dropping as a result, on the theory that currently, many folks are already bidding up the price of homes until it roughly offsets the value of the deduction. Since the deduction would only be limited rather than eliminated, I’m guessing this would disproportionately affect the upper-middle-class. (Same with the health care deduction for businesses, which is largely regressive.) To balance against this, the commission has recommended eliminating the Alternative Minimum Tax, which would give many of these—presumably upper-middle-class—homeowners an offsetting tax cut, depending on the details, but ultimately, the bulk of the AMT affects high income-earners, primarily. Best to wait until CBPP comes out with an analysis before judging.

In the past, the White House has screwed the poor in order to benefit the well-off; but creating winners and losers among the upper-middle class? Seems treacherous. Or maybe not: Kevin Drum once noted that this constituency is the easiest group for the Republicans to abandon when it comes to tax cut politics. Guess he was right.

Oh, and a flat tax is still under consideration.

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