When deductibility of interest expenses in a wide variety of vehicles was eliminated for income tax purposes in the tax reform act of 1986 under Ronald Reagan, those deductions ended up being replaced by deductibility of interest if incurred through HELOCs (home equity lines of credit) shortly thereafter.
Deductibility of interest expense on consumer loans, car loans and credit cards went the way of the dodo, only to be shifted to HELOCs. It was a fateful decision which made overleveraging of housing as routine as taking out the trash. But that's an entirely different kettle of fish.
In 1987 Congress quickly acted to expand deductibility of HELOC interest expense because the 1986 act cut people off at the knees and they didn't like it one bit. It was a consumer society accustomed to deducting credit card interest, and it didn't like the new rules at all. The 1986 act quickly proved to be a futile attempt to curb consumer spending and encourage savings. The political fallout was so great that the interest expense from HELOC borrowing was dramatically expanded to fill the gap the next year.
I quote from The New York Times, here, February 2, 1988:
BORROWINGS AGAINST EQUITY: In addition, homeowners will be allowed to claim mortgage deductions for up to $100,000 in borrowings against the equity in their house - no matter what the loan is used for.
A veritable chorus of voices today on the right and left, including Rush Limbaugh who is simply phoning it in these days, is appealing to this period to urge the country to get behind a Republican Super Committee plan to raise revenues by closing loopholes like the mortgage interest deduction for wealthier taxpayers, "just like we did in 1986."
Oh yeah? What's in it for us?
Once the camel gets its nose under this tent in the name of making the rich pay more, you can bet the precedent will be used down the road to deprive the middle class also of the deductibility of interest on a home mortgage.
And you'll get nothing to replace it except an empty promise to lower your overall tax rate, which the next Congress will rescind in a heartbeat. Few of you remember that the top tax bracket from 1988 to 1992 was 28 percent. Bill Clinton and the Democrats made short work of that.
Real conservatism is about using federal tax policy to promote property ownership, ordered existence and family formation. The current crop of establishment Republicans, including Rush Limbaugh, is a bunch of phonies. Rush can't even remember 1986:
The Republicans are offering a plan which would take away itemized deductions for anybody making over $174,400 a year. In exchange for that they would lower the top tax rate from the current 35 down to 28%. We've done this before. We did this in 1986. This was part of Reagan tax reform except the top marginal rate then was 50. Wait a minute. No. All itemized deductions for people who make the... Stick with me on this. All itemized deductions for everybody who makes $174,000 or more -- home mortgage interest, charities, all of that, gone in exchange for a lowered rate from 38, 28%. Now, we've done this before. Back in 1986, top rate was 50, took it down to 28, there was a bubble of 31 percent for few people, and we got rid of some deductions.
There will be no future America without the traditional family.
Too bad Rush Limbaugh has never had one.
