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1st, it was a subsidy for all debt when all interest was deductible. The remaining deductions for mortgage and other interest is still a subsidy. (The argument used in the mid-80’s when the elimination of the personal interest deduction was proposed is that it was a subsidy for borrowers who went into debt.)
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It is a subsidy if we agree that any money not confiscated by the government is a subsidy to those who got to keep it.
Interest was never taxed until 1986. I was not here in 1986 when some of the interest was made taxable, but I believe you when you say that politicians framed the tax increase as an issue of fairness. That’s my only point – taxing something that has been going on since the invention of natural exchange and was never ever taxed might be ‘good’ policy and required, but it should not be presented as stopping a giveaway.
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Interest income has been taxable for almost 100 years. (income tax started in 1913.) Interest paid was also deductible since the beginning of income tax in the US. But 100 years ago, almost no one other than farmers had mortgages on homes. There were no credit cards or HELOCS or car loans. It wasn’t until the mid-30’s that the number home mortgages exceeded farm mortgages.
But that doesn’t negate the fact that the mortgage interest deduction is a subsidy (or in the current lingo, a tax expenditure.) As is the deduction for church contributions, retirement plan contributions, and medical insurance. The tax code continues to evolve, In the last 100 years it’s undergone 2 major overhauls (in 1954 and again in 1986), with top tax rates ranging from the 7% at the beginning, to a high of 94% during WWII. The argument that once a deduction is codified, then any elimination of that deduction becomes a “confiscation” is absurd, unless you consider the first dollar of income tax paid as confiscation. If that’s the case, the largest confiscation of all time ocurred during the mid-80’s. It’s not a term I ever remember hearing either before or after tax reform passed under Ronald Reagan.
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[quote=SK in CV]
2nd, your argument would seem to support never reducing government entitlements or expenditures. So social security can never be reduced, medicaid cutbacks are out of the question, the Earned Income Credit must be permanent, reduction of college education funding should have been opposed, and eliminations of government employee retirement plans is yet again, the government taking something away. Is that really the argument you want to make?[/quote]
No. My argument is that the interest deduction is not an expenditure, that’s all.
Incidentally, you picked items that I have no problems with – I don’t think any of the listed should be reduced. But that can’t be inferred from my premises.[/quote]
We’re on the same page as far as elimination to those programs. But any way you look at it, they are all expenditures, as sure as elimniation of deductions is, as is funding the military.
