US House Representative Deborah Halvorson has introduced a bill, HR 2146, that would extend the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. for state and local property taxes paid through 2011. The deduction was originally available only for taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. years 2008 and 2009. The bill is currently with the Ways and Means CommitteeThe Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is one of 29 U.S. House of Representative committees and is the chief tax-writing committee in the U.S. The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. .
The standard deduction for property taxes (which strikes me as a bit of an oxymoron, as the standard deduction is in theory designed to already include the standard expenses that should be deductable from income) is another example of a “temporary” tax subsidy that benefits special interests but ends up being anything but temporary. As is often the case with these provisions, once the legislation gets passed as a temporary measure lawmakers and lobbyists will start to complain of the immanent and devastating tax hike that will occur when the provision expires, and the measure gets extended.
We’ve written many times before about how the tax code overly subsidizes the housing industry, so I won’t spend too much time on this, except to say that in general sound tax policy would dictate that all housing be treated equally. As it is, a deduction for property taxes paid, taken either through itemized deductions or through this newer standard deduction, and coupled with all the other tax benefits for homeowners, favors homeowners over renters and subsidizes owners at the expense of everyone else in the tax system. Tax Foundation economist Gerald Prante puts it into perspective:
The tax code is already littered with special tax provisions that favor housing, and public finance economists all along the political spectrum agree that they are excessive, to say the least. From the mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. to the deduction for real estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. es paid to the capital gains exclusion for primary residences, the federal tax code funnels more than $100 billion dollars annually into the housing sector. That’s nearly 10 percent of total federal income tax collections, enough so that if the subsidies were repealed, we could cut every personal income tax rate by 14 percent. And that’s without counting the billions spent directly by the Department of Housing and Urban Development (HUD) and the government-created entities known as Freddie Mac and Fannie Mae.Share