by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Neither a borrower nor a lender be, Polonius famously counseled. Uncle Sam, who has long subsidized borrowing and lending, may be coming around to that point of view.
The tax bill introduced last week by Republicans in the House of Representatives has plenty of cuts in rates, but fewer reforms. As for simplification, a 429-page document hardly qualifies as simple. And far from putting tax preparers out of business, the proposal will keep lobbyists and tax lawyers extra busy, as the House attempts mightily to meet the Thanksgiving deadline imposed by President Donald Trump to produce a bill to send to the Senate. The World’s Greatest Deliberative Body—at least in the opinion of a select group of 100 men and women—is then supposed to pass tax legislation by Christmas.
Even if such a miracle does come to pass, there are certain to be lots of changes in the legislation by the time the stockings are hung by the chimney with care. The proposals at this point, as John Kimelman and Karen Hube outline, concern mainly a reduction in the corporate tax rate, to 20% from the current statutory 35%, plus a lowering of personal tax rates, which are paid for by the elimination of—or reductions in—various deductions and other breaks.
Prominent among those—and of key importance to investors—are the scuttling or curbing of incentives to borrow that are buried deep into the tax code. Perhaps most noticed is the halving of the size of home mortgages that qualify for interest deductibility, to $500,000 from $1 million. Under the new ceiling, the most expensive house that would get full deductibility would go for $625,000, assuming a 20% down payment and an 80% loan-to-value ratio, the kind of safe and sane loan that once again has become common after the subprime debacle that precipitated the financial crisis. That’s more than the national median, but way below what houses cost in pricey places on the coasts.