Nick Jordan: Most not hurt by loss of deduction
02/03/2013 12:00 AM
02/01/2013 4:28 PM
If you are a homeowner, think back on what led you to make that exciting purchase.
Did you buy your house because you wanted a safe, warm place to raise your family and create lifelong memories? Did you buy it because you liked the particular size or style of the home? Perhaps location was a key factor to you.
These are things people commonly cite when recalling their home purchases.
On the other hand, no one has ever told me that he or she purchased a home to be able to itemize a mortgage interest deduction on a state income-tax return.
Despite that, special interest groups are fighting hard in our state to keep this targeted tax break that is used by only a minority of tax filers.
It is time for their heated rhetoric surrounding the mortgage interest deduction to be balanced with facts that will lead to a more thoughtful policy discussion about how to make our state tax system fairer, flatter and simpler.
First, more than 70 percent of Kansas tax filers do not itemize deductions and would not be affected in any way by the elimination of the mortgage interest deduction.
In Sedgwick County, a family with an income of $67,000, which is about the county median, would see a $851.09 reduction in taxes when the state income-tax rate is lowered to 3.5 percent. That is $638 more than they would receive from the mortgage interest and real estate tax deductions, which would total $213 for the average Sedgwick County homeowner.
Second, changes to Kansas’ itemized deductions will have no impact on federal deductions, which are much more significant to those looking at real estate for tax advantages.
Third, and importantly, as state income-tax rates go down and standard deductions go up, the vast majority of taxpayers will pay less in taxes, not more, because the value of itemized deductions is offset by the greatly improved tax environment.
For example, married taxpayers filing jointly with one child, income of $67,000, and $9,900 in itemized deductions today will be able to take the standard deduction in tax year 2014 and pay $105 less in state income tax, thanks to reduced rates for everyone. This family’s annual tax savings will increase to $555 when tax-rate relief is fully phased in, in 2017. A similar family with income of $91,460 and itemized deductions of $17,168 will see a $552 annual reduction in taxes in 2017.
Kansans have rightfully complained for decades about the absurd complexity of the tax code at the federal, state and local levels. The elimination of targeted tax breaks such as the mortgage interest deduction is where the rubber meets the road if we are serious about a fairer and flatter system.
By undoing the inefficient and frustrating tax system cobbled together over many decades, we truly can modernize Kansas’ tax policy in a way that funds core government functions while encouraging small-business growth, job creation and financial investment in Kansas.
A growing state economy is what leads to more houses being bought and sold, and that is the best outcome for the real estate industry and all Kansas families and businesses.