New Minnesota Tax Proposal

19Mar09

Heard about the new state income tax proposal by Rep. Ann Lenczewski (DFL–Bloomington).  She suggests eliminating the current credits for day care and subtractions for education expenses and a cap on the mortgage interest credit at $420.  The Strib quotes her, “Credits are back-door spending that favor those at the higher level.”  Rep. Lenczewski also touts the benefits of a simplified tax system.

While eliminating the day care credits and education deduction would make it simpler, you’d lose that on the elimination of the mortgage interest cap.  Since you are currently allowed the entire deduction (with income limits) on your federal taxes, now you have to pull that paperwork back out and figure out how much income you have to add back in.

The credit for day care is only available to families paying for day care while working or looking for work.  And is only available if your household income is less than $36030.  Yeah, that’s “favoring those at a higher level.”   The education credit is good on after school enrichment programs and unimportant stuff like pencils and notebooks and only if your household income with two kids is less than a whopping $37500.   And the income limit goes up by only $2000 per additional child.  Oh, however can we stand giving a break to people making so much!

The mortgage interest deduction on the federal taxes ends up based on the actual value of the mortgage itself and gets limited for mortgages over one million.  While you might convince me that that’s an awfully expensive home to be able to deduct all the interest, $420 is an awfully small amount.  I will pay more than that in interest in the final year of my mortgage.  The ability to deduct mortgage interest is what made it possible and affordable for my wife and I to get out of renting and buy our first home.  The end result of a $420 deduction on  state taxes doesn’t even buy dinner out (it’s about $22), let alone help someone start building equity.  While this may not hurt the lower income families that don’t own a home now, it’s going to make it even harder for them to buy one even when banks start lending again. And it will certainly hurt the middle-of-the-road average Sven.

Well, there it is.  My first ever blog post.  Maybe not as polished as many others, but I plan to get better as I go.

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