The Deadman Night Rider

A forum for evening students of the SMU Dedman School of Law and other outlaws..

Tuesday, July 05, 2005

Check out The People’s Tax Lawyer when you get a chance – a new blawger out there from Colorado. Even if you’re not a tax freak, I think he’s got an interesting take on things and isn’t your average bean-counter. (I’m wagering that instead of a Mao/Che thing, the name of the blog is a reference to either The Young Ones or The Rock, but that’s just me…)

The PTL has a good post on the uncertain link between the President’s broader ‘Ownership Society’ theme and various tax breaks for education, healthcare, retirement, and home ownership. He starts out by making a point that is generally lost in the media: the effect of these incentives is diluted as you go down the income scale because (as I’ve noted in a post below) an increasing number of tax-filers come out with no tax liability. As they say, if it bleeds it, it leads – and stories about low-income workers getting more from the EITC doesn’t play well beside glowing reviews of Nickel and Dimed or 30 Days.

I think the PTL is a little too pessimistic about these incentives, though – mostly because I believe he misidentifies the people they are targeted for. I’m, of course, going to do what anyone does when assessing tax policy – take my own situation and hold it up to be the norm :) There is absolutely no bigger fan of the Hope and Lifetime Learning credits than me – in the years that I was getting ready for the CPA exam and my wife was in undergrad and grad school, these credits were tremendously important to us. (Credit where credit is due – these are Clinton’s) During that time, we lived on one income ranging from $35 to $40K, with no kids – squarely middle class.

We were lucky enough to escape a lot of credit card debt, which PTL points out many people are dragging along. But if we had been borrowing on consumer credit, those educational incentives would have been even more vital for us – in effect allowing us to divert money from taxes to pay down our debt rather than from our educational expenses. The same would have held true for a mortgage if we’d had one.

On that score, he worries that the incentive toward home ownership might be perverse now, given the fears of a housing bubble and the fact that interest rates are expected to rise. This will put buyers of adjustable rate mortgages at a risk of higher rates of foreclosure. The simple solution to that is for people not to buy ARM’s when they know interest rates are going up. That’s really the problem at the heart of all this, though: tax incentives, any incentives, only work for people who make the right decisions. To put it more cynically, the fact that there are so many households with little or no savings isn’t an indication that the tax incentives for savings aren’t working – it’s that there is a large number of Americans who can’t be induced to save by any voluntary mechanism.

PTL has a point, though, that to reach that section of people - to pull them into the Ownership Society - is going to require non-tax measures. He suggests strengthening usury laws by capping credit card fees, which just seems like enabling to me - I'd prefer stronger truth-in-lending provisions to make borrowing more transparent. We've all seen the microscopic print in credit card agreements, and my simple little mortgage wasn't much better. Even as a CPA, I couldn't walk back and forth between my stated interest rate and my 'effective rate', as disclosed by federal mandate. Sadly, when I called my lender they couldn't either, since they didn't know all of the factors that went into the equation - which pretty much destroys any comparative value in the figure. I've read that is the state of the industry - and there's no way I believe that isn't exactly the way it was intended.


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