Without a Touch of Compassion -- 2017 Tax Reform

Hank  Adler
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Posted: Feb 16, 2017 9:12 AM
Without a Touch of Compassion -- 2017 Tax Reform

For one hundred years, the Internal Revenue Code has included a series of itemized deductions designed to provide a level of protection against personal tragedy while encouraging home ownership and charitable contributions. In the name of simplicity, the proposals by Congressmen Ryan and Brady wash away these levels of humanity from the Internal Revenue Code.

In the name of simplicity? How difficult is it to list the cost of rebuilding a home after an earthquake or a fire or compile a list of the expenses of caring for a spouse with Alzheimer’s disease or some other chronic illness? Are we walking away from compassion to achieve faux simplicity and simultaneously implementing both lower tax rates where the overwhelming benefit will be to the wealthiest individual taxpayers and implementing business incentives?

The Ryan/Brady tax reform proposal eliminates deductions for medical expenses and casualty losses for all taxpayers while also eliminating the tax advantages of home interest deductions for most homeowners and providing zero tax benefit or incentive for most taxpayers to make charitable contributions.

This is the reality. How did two well respected Congressmen get here? My best guess is that only economists and politicians participated in this quest for tax reform. Anyone who has helped middle income taxpayers with tax planning, prepared tax returns for senior citizens or victims of an earthquake, or raised money for charitable causes would have tried to put the brakes on the individual proposals included in the Ryan/Brady tax reform proposal.

Imagine another devastating earthquake in Southern California and homeowners being given the choice of making their federal income tax payments or rebuilding their homes. Imagine floods in the Midwest and homeowners who rebuilt their homes after the floods being foreclosed upon by the federal government for unpaid income taxes. That is the reality of the tax reform proposal; the Ryan/Brady proposal eliminates any tax deductions following a casualty, be it a home fire, terrorist attack, earthquake etc. Consider that California almost lost the homes of 200,000 people this week.

Imagine a taxpayer faced with the choice of putting a parent or spouse into a full time care facility at the price of not paying their federal income tax. Without the medical deduction, this could be a very real choice. This change to enable simplicity, the time it takes to look at one’s checkbook to determine the amount already paid to a healthcare facility?

Ryan/Brady provides for a $24,000 standard deduction for a married couple. For those who might have traditionally taken itemized deductions, Ryan/Brady only allows home mortgage interest and charitable contributions as deductions. There no longer would a deduction for property taxes. Quick math tells us that it takes a 5% loan of $480,000 to equal the $24,000 standard deduction. How many taxpayers have home mortgages even close to $480,000? Taxpayers will almost uniformly take the standard deduction. As a result, almost no taxpayers will receive any tax benefit either from homeownership or charitable contributions as it would take a combination of $24,000 of home interest expense plus charitable contributions before there would be a $1.00 tax incentive for either home interest or charitable contributions.

Has anyone given thought to a cultural reality where there are no tax incentives for home ownership or charitable contributions? Would the Ryan/Brady plan reduce home ownership? Would the effective elimination of the interest expense and property tax deductions for virtually all Americans ultimately result in less individual home ownership and with it vastly change the American culture of striving for individual home ownership? And which charities and those charity’s beneficiaries would suffer from the loss of any tax incentive to donate?

The initial concept of the compassionate conservative is credited to U.S. historian Doug Wead from a 1979 speech and subsequently adopted by both Republican and Democratic politicians. In fact, politicians around the world have adopted the philosophy of compassionate conservatism. There is nothing compassionate about tax reform that eliminates deductions for medical expenses or casualty losses and effectively provides no tax benefits for home ownership. There is nothing compassionate about effectively eliminating the charitable deduction for most American taxpayers. Under the Ryan/Brady plan, under the faux guise of simplicity, compassion disappears.