Upcoming over the next several months leading to the election, I plan to start a presidential series to discuss tax proposals of candidates, questions we should be asking of candidates regarding taxes, and suggesting ideas for improving our tax systems. I expect a lot of this will also include a look at the $1.4 trillion of spending that is buried in our tax system via tax expenditures - that is, special deductions, exclusions, rate and credits that are not crucial to the particular tax and mostly just result in higher tax rates and usually, subsidies for taxpayers who don't need them.
For example, California Senate Kamala Harris has once again proposed the LIFT Act (S. 4, Livable Incomes for Families Today) the Middle Class Act). It offers a tax credit of up to $3,000 per year ($250/month) ($6,000 if married filing jointly), based on earned income.
I think many people first react saying - why? That's a lot of money.
But, consider what the tax break is for a high income individual today with a $1 million grandfathered mortgage on their first (and/or second home) generating an interest expense deduction of about $40,000. Let's say this person also has health insurance paid by his/her employer of $15,000 (tax free), and $3,000 of tax-exempt interest income. Let's say this person is in the top rate of 37%. The value of these deductions is $21,460 or almost $1,800 per month. Even if this person had a marginal rate of 35% or 32% the subsidy received just for these tax breaks is more than what LIFT offers.
Of course, there are more people who would qualify for the S. 4 credit than there are folks in the top tax brackets.
But, I hope this illustrates questions we should be asking (such as why are we providing large subsidies to those who don't need them, and how much could rates be lowered if we cut back on tax breaks). Also, is the monthly credit the best way to go? What are the costs to administer? How can technology make this all a more efficient process.
If you have suggestions or questions, please post them here.
Thank you for reading this blog!
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