Commentary: War on Wealthy Will Cost Us All
CNBC Chief International Correspondent
New Home Sales hit a record low this morning, yet President Obama wants to make it tougher to buy a home. What is he thinking?
January new home sales totaled 309,000, which is a record low. The amount of supply on the market is at a new high, too: 13.3 months worth. And yet the White House, which claims to be so worried about foreclosures and falling home prices, wants to reduce the deduction individuals can take for mortgage interest when they buy a home.
Right now, if you are in the 33 percent and 35 percent bracket (the highest), you can claim deductions at those rates on your mortgage interest. Now, the President says he wants to reduce that deduction to only 28 percent.
Here's the math: For every $1,000/year in mortgage interest, someone in the top tax bracket would see his or her tax break drop from $350 to $280. Lets say you paid $6000 in mortgage interest last year—the deduction drops by $420.
Why do anything that makes it less attractive to buy a house right now? And remember new buyers will be most affected because the first years of a mortgage are almost all interest, and no principal.
More on Obama Plan:
- For Health Care, Obama Looks to Taxes on Affluent
- The Budget's Winners and Losers
- Poll: Do You Win Or Lose With the Obama Budget?
- Obama: Tough Choices Ahead On $3 Trillion Budget
You may think the increase in taxes doesn’t sound like much and that the wealthy can afford it. But the President has made it clear it doesn’t end there. This is just the beginning of his efforts to go after the wealthy. And those efforts likely won’t raise nearly as much money as he thinks.
The Wall Street Journal dug through the IRS data and point out that in 2006, 7 percent of the population paid 62 percent of federal income taxes. The top 1 percent paid nearly 40 percent of all tax revenues, even though they earned just 22 percent of the country’s income.
New York City Mayor Michael Bloomberg said it so perfectly a few weeks ago when he pointed out that 1 percent of New York City’s population pays 50 percent of the city’s taxes. Think of it this way—40,000 people pay half the taxes for a city of 10 million. As he pointed out, you raise taxes on them, and a handful of them leave, you are back to where you started with tax revenues.
It's tax neutral. If you increase the tax on the most productive members of the economy, you will make them less productive. Ronald Reagan learned this when he was an actor: he realized that it only made sense to make a certain number of movies a year. After that, all his money went straight to the government—so why bother? He became less productive than he would have been otherwise.
More from Michelle Caruso-Cabrera:
- Opinion: Illegal Immigrants Impact Stimulus Bill
- Bernanke to Santelli: Save the Neighborhood
- Bernanke's Slip May Have Caused Bank Share Tumble
- The Unintended Consequences of Gov't Intervention
- Housing Plan: A Break For Those Who Least Deserve It