As tax rebate checks are slowly (with a huge emphasis on slowly) making their way to taxpayers, Congress is considering a second round of relief. This relief would be targeted to homeowners facing foreclosure as well as increased spending on bridges, roads and transit systems.
There may be renewed interest in foreclosure relief because of recent information that 2 million children will be directly impacted by the current crisis. I have to say, as a mother of three small children, my heart goes out those parents who are facing difficult times as a result of the crisis. As a taxpayer, however, I don’t want my dollars funneled to government “relief efforts” to resolve the problems, much of which is directly the result of poor choices by homeowners and no oversight of greedy, uncontrolled lenders.
As for bridges, roads and transit? Yes, let’s fix our transit systems. Maybe then we won’t be quite so reliant on the need to fix bridges and roads… But now? In a fiscal crisis? Exactly how would that help our economy immediately?
It sounds a little FDR-ish, don’t you think?
President Bush opposes a second plan of any kind, choosing a wait and see approach. However, Democrats note that the Iraq war is adding about $12 billion to $15 billion to the deficit each month, with no end in sight. They argue that more money should be spent here in the US to fix the current problem.
What do you think?
So following up on yesterday’s post about the proposed tax relief for debt cancellation related to foreclosures, I wonder, “Is it fair?”
Today’s Fix the Tax Code Friday question is:
Should Congress offer tax relief to those who are affected by the housing market (those in foreclosure)? Should Congress offset the lost revenue by limiting capital gains benefits to those who convert second homes to primary residences? Can you think of any other ways to address the subprime mortgage fiascoes and the decline in the market?
The House Ways and Means Committee has voted to permanently remove the income tax consequences for homeowners whose debt is partially forgiven by a lender after a foreclosure. The bill is likely to pass the House and Senate, and President Bush has already spoken publicly about his approval of the measure.
Great. Now homeowners have yet another incentive to spend beyond their means – as if interest only and subprime mortgages aren’t enough.
Don’t get me wrong. I don’t love the idea of adding insult to injury. And I don’t think adding an income tax consequence to someone already saddled with debt is a terribly effective way to get out of debt. And I realize how easy it is to become saddled with debt (I say this as a homeowner with tons of student debt, trying to educate and feed three children).
But this is the thing. I have people calling my office every week to tell me their stories. And a lot of times, it’s a combination of bad choices, bad luck and bad timing. And those people I can help.
But lately, I’ve been hearing more and more of the “I bought a house that I couldn’t afford at an interest only mortgage and help, now I’m in trouble!”
The answer? Take away the tax consequences. Whereas before, debt forgiveness was subject to taxation, the bill relieves all related consequences. You can read more from my colleague at Roth PC here.
The new “tax cut” means significant loss of revenue to the Treasury. To make up for the shortfall, the committee has approved restrictions on capital gains tax benefits available to second home owners who convert their vacation homes to primary residences. In other words, to paraphrase my colleague, Congress is offering a tax break to folks who can’t pay their debts by taking away a tax break for folks who can. Interesting concept, no?
