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Making taxes less taxing for the middle

Marketplace Staff Jan 11, 2008
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Making taxes less taxing for the middle

Marketplace Staff Jan 11, 2008
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TEXT OF INTERVIEW

Tess Vigeland: This week the Internal Revenue Service got an earful from the nation’s taxpayer advocate.

The most interesting recommendation? “Apology payments” — that’s what she called them — of up to $1,000 if the IRS mishandles a case.

Don’t hold your breath for that one, but taxes are certainly an appropriate topic for a show about the middle class. Have you ever heard politicians talk about taxes without mentioning the middle class?

Well, we wondered whether all those targeted breaks are working.


Vigeland: Scott Hodge of the Tax Foundation, do you think they are?

Scott Hodge: Over the last couple of years, we’ve tried to target the middle class with various sorts of tax deductions like the $1,000 Child Tax Credit and what we’ve done as a result is knocked millions of low to modest income people off the tax rolls and what that’s done is put greater stress on the top 20 percent of taxpayers. Those earning roughly over $80,000 a year pay about 85 percent of all the income taxes in America today.

Vigeland: When we look at tax breaks talked about as being targeted to the middle class — you think of the mortgage interest deduction, the child deduction — do those tax breaks actually help what we think of as the middle class?

Hodge: The vast majority of the benefits from things like the state and local tax deduction, the mortgage interest deduction, go to folks earning well over $100,000 a year, but the benefits of those kind of tax breaks don’t generally tend to go down the income scale. Many people who are low or modest income don’t own their homes or if they are, they’re retirees who own their homes outright and wouldn’t be eligable for those deductions. Now things like the child credit can measurably help low to modest income families because of the value of that $1,000 per child tax credit.

Vigeland: Tax policy-wise, what do you think would really help the middle class?

Hodge: I think there are a couple ways in which you can truly benefit working families. One, obviously, you can cut their personal income tax rates — that’s the most direct route — but there are other ways in which you can benefit them as well. The typical American pays someone else to do their taxes because they either feel it’s too complicated or they’re afraid of making a mistake. It’s adding stress on people who don’t need that extra stress and it’s time for fundamental reform and I’m surprised that of all these presidential candidates, not one of them is really talking about fundamental tax reform in a way that I think is realistic.

Vigeland: Scott Hodge is with the non-profit Tax Foundation. Thanks so much for coming in.

Hodge: Thank you.

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