When is a tax cut not a tax cut? When it's a Bush tax cut

[xray s]

The devil is always in the details...voodoo tax policy strikes again.

http://www.dailyherald.com/search/main_story.asp?intID=38018163

Bush tax cut backfires for many homeowners
Daily Herald Reports
Posted 2/1/04
It's a case of unintended side effects.

Last year's tax cuts - the ones we all love even though the money in our pockets was borrowed from our children - had an unintended side effect. The increase in the standard deduction for a joint return from $7,950 to $9,500 for 2003 and $9,700 for 2004 reduced the income tax burden on many couples. But it also reduced the benefit of homeownership deductions.

While one part of the tax code was reducing your tax bill, another part reduced the value of a beloved homeowner tax benefit. Funny how that happens.

(snip)

It means that most people, particularly those who buy houses without wine cellars or 24-seat media rooms, need to start correcting their Realtors about the tax benefits of homeownership. It means that many homeowners will find that the tax benefits of homeownership aren't all they're cracked up to be.

At the end of September 2003, the national median price for existing homes was $177,000. As I've pointed out in other columns, home mortgage and real estate tax deductions were once the mother's milk of homeownership. Today, they allow people who live in $100,000 houses to subsidize people who live in $400,000 condos.

[The Backlash Cometh]

1. It's more like a reverse rebate.

It never really trickles down.

[skippysmom]

2. just started working on taxes

as a first year homeowner. Boy did this ring true! We paid about $9900 in interest on our mortgage on our $200K house, which puts us just above the standard deduction of $9500. Add in taxes and other deductions and we get about 11,000 total deduction. A deduction which will keep going down year after year until we have no reason to itemize anymore.

We bought a house because we wanted a house -- not for a tax deduction -- but it's a good thing we didn't buy for the tax deduction. Lots of middle income people will get screwed.

Ah, life in Bush's America...

[ramapo]

3. Trickle Down Debt

Another "benefit" of the Bush (like Reagan's) tax cuts are the reduced federal dollars available to state and local governments. Not many tax cuts going on at that level. Property taxes are rising, state governments are in a world of hurt. When all is said and done, it is likely that your total tax bill increases. I remember this was precisely the effect of Reagan's tax "cuts".

Cheer up. The national debt now is YOUR debt (just like the tax cut was YOUR money). Now you get to pay interest on your debt which in turn gets paid out to those who can afford to invest in bonds. Can you say income redistribution?

[Cinic]

4. Some please explain...

...how from a personal finance perspective this is a bad thing?

Say that someone has $7000 in itemized deductions. Their standard deduction was raised which is good for them.

Say that someone else has $8500 in itemized deductions. Their standard deduction now is larger than the itemized deductions, which is good for them.

Say that a final person has $10000 in itemized deductions. Everything stays the same for them.

This author is saying that it's bad because 'someone else' now uses the standard deduction instead of the itemized deduction. That doesn't make any sense to me. I don't see how this hurts joe-average or helps joe-millionaire. Who cares where the deduction comes from?

Another thing driving this might be the low interest rates right now. I don't know about you guys, but I'd rather not pay the interest in the first place than be able to deduct it from my AGI.

Am I wrong here?