As the debate over the Flat Tax reform of the IRS intensifies, there are many people who are confused about the lack of a mortgage interest deduction in the Flat Tax. Excuse the pun, but this is Flat out wrong. Under the Flat Tax, there is a large basic personal cost of living exemption. Included in the basic cost of living is an allowance for the cost of housing. Everybody gets some allowance for their housing costs. It doesn't matter if you :
rent for $8000 a year and eat at home,
rent for $6000 per year and eat out a few times,
have $7000 in mortgage interest payments, and $1000 in mortgage principle payments
have $2000 in mortgage interest payments and $6000 in mortgage principle payments,
own your house and have to paint your house and put a new roof on for $6000,
share your rent with someone at $4000 per year and put $3000 into savings for a down payment on your first house,
share your rent with someone at $4000 and put the rest into buying a camper for portable weekend housing.
live in a tent and eat bushes for dinner and spend your money on widgets.
Under the current tax code, only those with mortgage interest payments have any tax deductions (pink). Under the Flat Tax code, just how and how much your basic cost of living exemption you use for housing is up to you (pink & green), not the social engineers in Congress or the White House.
Which tax code covers more people's housing costs with greater fairness? |
If you can afford a life style with housing costs that exceed your basic cost of living exemption, fine. You pay a single flat tax on your income that allows you to afford that additional improvement in lifestyle. Under a Flat Tax, if you have a million dollar income with a million dollar mortgage you will only have as much basic living exemption (for housing, food, etc) as someone earning 15k who rents an apartment. The Flat Tax is fair and simple enough for everyone to understand. What you earn and spend beyond the basic living exemption is up to you. The only caveat is that your income above that level will be taxed at one Flat Rate. The result is a modestly progressive tax code that doesn't penalize hard work or responsible lifestyles.
If Bobo down the street chooses to live beyond his means and moves his credit card payments into his mortgage to get a lower interest rate on his credit care debt, fine -- he can do that. However, once Bobo's mortgage interest payment goes beyond the basic living costs, Bobo will pay taxes on what he earns to support his high flying deficit lifestyle. If Bobo has a lots of credit card debt rolled into his mortgage, the rest of us who live within our means will not be paying more taxes to support the tax deductibility of Bobo's somewhat fiscally irresponsible lifestyle. The Flat Tax allows for personal responsibility, self reliance and self determination to be rewoven into the fabric of our society. The long term result of a simple, fair Flat Tax will be a freedom loving society with a stronger sense of morals, more personal responsibility, less need for welfare, lower tax rates, lower interest rates, higher wages, etc, etc.
Of course it is possible to add in this and that special interest exemption to a Flat Tax. However, each corruption of the simplicity of the Flat Tax disrupts the moral fabric of the fair and responsible society the Flat Tax defines. Under the Flat tax, everyone has the same basic cost of living rights and responsibilties. As responsibilities are shifted from one special interest to another through this or that exemption in the tax code, one group ends up less responsible and another more responsible for those who behave less responsibility. The result is an unfair society which is furtile ground for mud farming politicians. The loss tax revenue will have to be picked up by everyone else. If we take this pathway, before long, the TaxLand follies will return with its unfair micromanaged social engineered tax code with thousands of pages of tax code that sap the freedoms and responsibilities of this nation's society. People will become re-enslaved to the corrupt FlatLand philosophy that people can't live a responsible life without handouts from politicians.
Yes, the Flat Tax would be a change in our society. However, it is a change for the better that is long past due. Hopefully, you will come to understand the fairness of its simplicity and will help unravel the confusion of others that decades of misguided social engineering have created. It is a daunting but achievable task.