Mortgage interest tax deduction being discussed

With the federal government looking for more money, a budget deficit commission has been discussing possible changes to the tax code to bring in more revenue. One option among a number of options: limiting or revoking the mortgage interest deduction.

Whatever this commission recommends, I can imagine the political fights that may ensue.

Deciding who is really rich

As the American government considers changes to the tax brackets, James Surowiecki of the New Yorker says this involves an important question: how much money does one have to make to be rich?

While the administration has suggested being rich starts at $200,000 income per year, Surowiecki describes why it is not so simple:

Judging from surveys of how Americans describe themselves, most of the privileged don’t feel all that privileged. Why is that? One reason is the American mythology of middle-classness. Another is geography: in a place like Manhattan, where the average apartment sells for nine hundred thousand dollars, your money doesn’t go as far. And then there’s a larger truth about how wealth is getting concentrated in this country. As the economists Thomas Piketty and Emmanuel Saez have documented, people who earn a few hundred thousand dollars a year have done much worse than people at the very top of the ladder.

Indeed, wealth and income is often relative: if you made $150,000 a year but lived in a neighborhood and mainly associated with people who made around $1,000,000 a year, you might feel poor. The same concept is used to describe various levels of poverty: the relative poverty of the United States versus the absolute poverty experienced in Third World nations. Americans are notorious for feeling like they are middle-class, even if they clearly are not.

At the same time, I find it slightly difficult to believe that $200,000 doesn’t make one rich. Of course, one has choices about how to spend that money. Making $200,000 in Manhattan is not the same as the making that money in Nebraska. However, it should cover all of one’s expenses. Those making over $200,000 are still part of a small and elite group: according to the Census Bureau, in 2006 3.5% of American households made over $200,000 a year.

Surowiecki suggests the solution is to create separate tax brackets for the rich and “super-rich.” If the tax rates are changed, this seems reasonable to me – though it complicates the tax code.