In response to Veronica Coons’ column on Jan. 19, I don’t disagree that it would have been much more forthcoming for the Governor to be upfront about his tax plans, if he announced it the morning after the speech he knew it the night before.
But the demagoguery of the media and the real estate industry on this issue is beyond reason (and almost beyond hope). I think it reflects poorly on those who are in a position to lead and shape the public debate on these issues, I just don’t believe most of you know the issues and facts about which you comment.
Let’s leave aside the issue of the propriety of the tax cut that takes effect this year. I’m not totally on board with how that was handled, but it is what it is. Let’s just focus on whether a house purchase this year (while lower rates AND the mortgage deduction is still in place) or next year (with lower rates but without the mortgage tax deduction) is more affordable that it was last year when tax rates were higher and the mortgage tax deduction was in effect. I believe this is the focus of the last portion of your Sunday commentary.
Here are the facts—for a married couple with taxable income of $60,000 in 2013 their top tax rate will go down from 6.25% in 2012 to 4.90%, the tax on their first 30,000 of income will go down from 3.5% to 3%, this will generate a Kansas income tax savings of $555. In addition, their standard deduction will be $9,000, up from $6,000, this additional $3,000 deduction will save them an additional $147. So it seems to me that this couple has an additional $702 over what they would have had in 2012 to use for the purchase of a new home, roughly $60 per month extra for a house payment. Under current tax laws they can now afford to take out a larger loan and buy a nicer house, as their tax savings can help pay an extra $12,000 in debt. If under the old tax law they could qualify for an $88,000, 4% 30 year loan, now they could qualify for a $100,000 loan.
So let’s say that the mortgage interest deduction is eliminated in 2014, and let’s further assume that income tax rates are NOT lowered further (I believe that is now proposed as the tradeoff). How much will this cost our taxpayer? On that $100,000 loan, they will lose a $4,000 deduction, which will increase their tax bill $196 (4000 x .049). And this assumes no additional tax rate cuts, which could go a long ways towards absorbing this extra cost. The end result is that they can now afford only a $97,000 loan instead of a $100,000 loan. Isn’t that still better than only being able to afford an $88,000 loan???
There are two ways I look at this: Even with the elimination of this deduction, is our couple still not better off in 2014 and don’t they have more ability to purchase a new home? Their net tax savings is still $506, this will still help them borrow an additional $9,000 in their efforts to buy a nicer house. Why don’t you focus on this big picture, not just the elimination of this one deduction without giving any context. Sure, folks, you’re a little worse off without this deduction, but compared to 2012, you’re much better off.
The other way to look at this is a little more down to earth, let’s see, 196 / 12 is $16 per month. $16 per month!! That’s going to stop me from buying a house??? Are you kidding me??? Let’s see, I would like to buy a house, so to make this work, I’ll go home for lunch one time every other week and eat for a dollar or two instead of going out for lunch and paying 10!! How hard is that??? You should be an ENABLER, not a DISABLER!!
It’s really hard when the opinion makers of the media take the approach that you exhibited in your Sunday commentary, not only on this topic, but on so many other issues.
Thanks for your time.