Are there tax breaks, whether individual or corporate, that should be changed or eliminated? Here are 5 tax deductions that seem to give a disproportionate tax benefit to a select few.
1- CAPITAL GAINS TAX – the thought is a lower capital gains tax will encourage investing. This is a 15% tax while ordinary workers are taxed at 35%. The rich make most of their money through investments and not a standard paycheck; so most of their income is taxed at only 15%.
2- HOME MORTGAGE INTEREST DEDUCTION – when you buy a house you can deduct your home loan’s mortgage interest on your taxes, BUT, the deduction is underwritten by homeowners who don’t get this tax break. Economists say the house mortgage interest deduction encourages financially well off people to buy bigger homes; this break benefits metropolitan areas with high incomes and high housing prices.
3- 2nd HOME MORTGAGE – deductions for interest on a vacation home loan; not all owners of 2nd homes are rich, but the ones whose 2nd homes are ski chalets, ocean view getaways or pied-a terre’s in New York City usually are. Owners of luxury yachts get to deduct mortgage interest loans they took out to buy the yacht. This tax break also applies to recreational vehicles that could qualify as a residence.
4- CARRIED INTEREST SPECIAL TAX TREATMENT – managers 9f most private equity funds get a percentage of the net gains as a management fee; this is known as a CARRIED INTEREST and it’s not taxed like regular interest on a regular savings account; it’s taxed as a capital gain (see #1 Capital Gains Tax)
5- OFF SHORING U.S. JOBS – businesses save on corporate taxes by shipping operations overseas and is one of the most villified corporate tax breaks.
It’s not likely these tax breaks will be eliminated since they’re popular among those receiving them; those receiving them are usually big contributors to political campaigns.