Is Tax Reform Even Possible in an Era of Big Money?

 

Reining in the mortgage interest tax deduction is a great case in point. No reform plan can lower top rates in a revenue neutral way without taking a whack at this and other big deductions. So while reformers like Dave Camp, Chairman of the House Ways and Means Committee, may have big ideas for reining in deductions, the higher ups in the GOP get very nervous about such proposals, as the New York Times explained today. Camp plans to introduce a reform proposal tomorrow, but as the Times said: "Republican leaders were not exactly encouraging Mr. Camp to press forward with his tax plan," which reportedly may, in fact, trim the mortgage interest tax deduction. 

 

Why is that deduction so hard to tackle? Well, let's start with the fact that the real estate industry -- which includes home builders and realtors -- has been the third largest source of funds for national candidates and party committees, by industry, so far during the 2014 election cycle, spreading its money to both sides. In 2012, this industry pumped $155.2 million into the elections. 

 

Needless to say, the real estate industry is dead set against cutting the mortgage interest deduction, which subsidizes home ownership -- at least for people who itemize their taxes. 

 

Parts of the financial industry -- an even bigger donor -- are equally opposed, because banks make the home loans, and tax subsidies mean bigger loans and larger interest payments. Think what a great deal that banks have now with the home interest deduction: Their profits on home loans are directly propped up by the existing tax code. Nice. You can bet banks will fight to the death to keep that gravy train going. 

 

And we've only been talking so far about campaign spending. These special interests spend even more on lobbying. 

 

What politician in their right mind would care to face a double blade buzz saw of real estate and banks? Maybe one who thought they could score populist points by taking on powerful moneyed interests. 

 

But we can forget about that happening. A big slice of the voting electorate will start frothing at the mouth when and if politicians ever come after the white picket fence. Yes, the home mortgage interest deduction mainly benefits affluent households, but this group is way over-represented in the electorate, as we've noted here before thanks to their high-turnout voter rates and lower turnout by less wealthy Americans. In the 2012 election, voters making over $100,000 -- prime beneficiaries of tax breaks for both mortgages and local property taxes -- made up 28 percent of the electorate. In the affluent state of Maryland it was 44 percent. In New Jersey, it was 38 percent; Connecticut, 46 percent. 

 

If you think that lawmakers from otherwise affluent and progressive blue states can easily get behind an attack on the totally regressive deductions for mortgage interest and property taxes -- deductions that give little help to those who most need housing help -- dream on. They'd be clobbered by angry voters whipped up with a bottomless well of special interest money. 

 

Which brings us back to the core issue of money in politics. The fight over tax reform can be never be a fair fight as long as we have the wealth-drenched political system we have. 

 

Conservative politicians like Camp who dream of a more streamlined tax system and lower rates should either close up shop or throw their hat in with democracy reformers. It's not 1986 anymore, when the last big tax reform push barely succeeded. We live in a new era of money in politics -- an era, for example, when a single donor, Bob Perry, spent $23 million on the 2012 election. 

 

Bob Perry recently died, but who was this famed mega donor? A home builder.