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Opinion-thumbs up/thumbs down.

(1) What are your thoughts on extending the Social Security payroll tax cut?

(2) Should the mortgage interest deduction on a second residence continue beyond 2012?

(3) Should tax debt be able to be discharged in bankruptcy?

Bloink's Response:

[thumbs up] (1) Eliminating the payroll tax cuts affects everyone--but it probably affects the lowest earners most dramatically. The cuts put extra money into the paychecks of lower-income Americans every week, and they've come to depend on this. Raising the payroll tax back to pre-2011 levels is a tax increase just like any other, and deserves just as much attention.

[thumbs up] (2) Limiting the mortgage interest deduction to a flat amount--whether that amount covers one home or three--provides a measure of equality in the tax code. It shouldn't matter how many mortgages the interest deduction subsidizes--today we can have one family deducting interest on a $1 million mortgage (the current upper limit) or one family deducting interest on two $500,000 mortgages. We shouldn't impose a penalty for owning multiple, less expensive homes when we already have an upper limit on the deduction.

[thumbs down] (3) Certain debts can't be discharged in bankruptcy because there's been a policy call--these aren't the types of debts we want to forgive. The bankruptcy court has the power to forgive tax debts in certain instances, and older tax debts are already dischargeable. The IRS recently issued guidance clarifying its position that tax debts can be discharged after a factsand-circumstances inquiry even if the debtor-taxpayer fails to properly follow basic IRS filing requirements. I don't think the rules are so rigid that they call for outright change either way.

Byrne's Response:

[thumbs down] (1) The payroll tax "holiday" was meant to be just that--a "holiday." Another extension of this tax break will undermine the Social Security system's ability to maintain viability over the long term, making it difficult for baby boomers preparing to retire to depend on the system they've paid into for their working lives. We have higher ticket items on the tax reform agenda right now--we should let this one go.

[thumbs down] (2) The mortgage interest deduction encourages home ownership--if you can afford a second home--you can afford to forego the interest deduction on that second home's mortgage. If we're looking for ways to increase revenue while preventing tax increases for lower-income households, here's a good one.

[thumbs up] (3) The current system imposing various time restraints on whether you can discharge tax debt in bankruptcy is overly confusing. You can discharge some tax debts--if the tax was due three years before you filed for bankruptcy. Unless the tax return wasn't filed more than two years before you filed for bankruptcy. Assuming there was no IRS assessment within 240 days of filing. The time limitations seem arbitrary and prove to be confusing in many individual bankruptcies. I think they should be eliminated or, at the very least, simplified.

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Publication:Tax Facts Intelligence
Date:Dec 1, 2012
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