Letters: Balancing Act: Readers react

After reading your editorials about the Washington spending mess, I felt compelled to write regarding your proposed fixes ["Balancing Act: We can clean up this mess," Nov. 20].

To begin with, there are many proposals that you are making that make a tremendous amount of sense to me. There are too many loopholes regarding deductible items and tax preference items. The corporate tax rates should be eliminated, which would result in most of the corporate loopholes (such as the oil depletion deduction) being automatically eliminated. The elimination of the corporate income tax would also make it more palatable to get the tax rates on dividends, at the personal level, to the same rate as that on other income, since there would no longer be a double taxation effect.

This being said, there are several items in your proposal that don't make any sense to me. Trying to remove deductions, such as the mortgage-interest deduction, just so that we can lower the tax rates and still get more revenues to the government sounds disingenuous at best. If you want more revenues, raise the tax rates. Not complicated. If you are discussing simplifying the tax code, fine. However, the itemized deductions that you suggest phasing out are nowhere near the most severe violations.

In addition, I have a hard time considering the mortgage-interest deduction a "loophole." This deduction was specifically designed to enable more Americans to own their own residences. I cannot recall one study that indicates that this does not work, regardless of home ownership rates in Canada. This deduction is not being abused, as there is a current cap on it, which means the really wealthy cannot abuse the deduction. While you are proposing to eliminate the mortgage deduction, you are making allowances for the real estate tax deductions, as well as other state and local taxes.

The flaw with this is the alternative minimum tax, which does not allow these deductions. I did not see anything in your proposal regarding the AMT, which is a serious problem for the middle class in this country, and for Long Islanders specifically, as we are a higher income area.

You are also proposing the elimination of the health insurance deduction. Why? I thought that, overwhelmingly, the American people have given their answer that health insurance is a necessity, and disallowing employers to deduct the costs of it will be the quickest route to employers no longer offering it at all.

Last, as for "runaway medical spending," you are right in that, as a country, we spend far too much on medical costs. One specific way of controlling that, though, is malpractice reform, which you have not addressed at all. If there were true malpractice reform, doctors would not order unnecessary tests to avoid lawsuits. It would also have other positive side effects: Many doctors are leaving their own private practices as they cannot afford the malpractice costs.

Howard Russo, Rockaway Park

Editor's note: The writer is an accountant.
 

The real answer is to limit gov't spending

This editorial raised some burrs under my saddle. You mentioned additional tax revenue created by eliminating some deductions which directly affect average people. At this point, we, the taxpayers, have been taxed enough.

If you remember years ago, car mileage and interest on credit cards were deductible. Now, you want to take away the tax credit on home mortgages.

The answer to solving the budget imbalance clearly lies in reining in government spending. In short, limit spending to what is collected, just like us average citizens must do.

We must start by cleaning house in Congress. Look into the misconduct of the men and women who are sent to the nation's capital to write laws, but too often abuse their power and privilege by placing their own interests ahead of the American people's.

These trying times cry out for term limits, and for Congress to give up its health and pension benefits, and end pork-barrel spending.

John Wolf, Levittown
 

Don't raise tax on capital gains

While I have enjoyed your series on potential solutions to our fiscal problems, your suggestion to tax capital gains at the same rate as ordinary income defies logic.

Investing involves risk, sometimes substantial risk. The flip side of capital gains is the reality of capital losses. Wages don't involve risk. If you have a job, you get paid. Since the tax code does not allow counting capital losses as negative income in the year it is experienced, the idea that gains should be taxed as ordinary income makes no sense at all and provides a substantial disincentive for investment.

Given the totality of Newsday's suggestions, I would save the money in an interest-guaranteed account (which would then be a deduction), rather than accept the risk of loss of principal through investment in securities, bonds or other non-guaranteed instruments. Of course, if you are willing to count capital losses as full negative income in the year they are experienced, we could have a discussion.

The other unfairness relative to long-term capital gains is that they are not inflation-indexed. If you have owned your home or held any investment for many years, a good percentage of what is now considered "capital gains" is just an illusion. A portion simply represents inflation on the original purchase price over the years, which is in no way a "gain" to the investor. At least now these false gains are taxed at a lower rate; Newsday would have one pay taxes on these false gains as ordinary income.

Finally, as is often pointed out, most capital gains are fueled by corporate profits that have already been taxed at the corporate rate. In these cases, the personal capital gains tax represents double taxation.

In general, I agree that taxing should be eliminated when you earn money; you should be taxed when you spend it. Your suggested method is overly complex, leaving the current tax structure in place and treating savings and investment as deductions against income. It misses money spent from savings or money earned in previous years, and stills leaves the myriad problems of defining "total income" and what it should include.

Direct taxation on spending can be done in a variety of forms, including a national sales tax (the narrowest base with the highest rate), a value added tax or a transaction tax (the broadest base with the lowest rate). Taxing spending is already progressive in that the wealthy spend far more money than anyone else, and could be made more progressive by adding a luxury increment or increments for some clearly over-the-top and discretionary purchases.

For example, buy a $30,000 car, pay one rate; buy a $100,000 car, pay a luxury increment on top. To protect low-income groups, food at the supermarket would not be taxed, but restaurant food would. Allowances for basic clothing expenses could be built into the system.

The beauty of this is that while it is too easy to tax income several times, you can only spend money once.

Roger Roess, Garden City South
 

Tax underground transactions

What everyone seems to ignore in the mad quest to balance the budget via tax cuts and revenues is the beleaguered Internal Revenue Service. That agency does a very poor job of its mission of collecting taxes.

If the IRS went after the underground economy where "off the books" income escapes taxation, the treasury would reap between $200 billion and $300 billion each year.

M.A. Maguire, Seaford