Do Seniors Deserve More Tax Cuts?
An awful lot of Democrats suddenly seem to think that senior citizens are overtaxed.
Presidential hopeful Barack Obama wants to exempt seniors making less than $50,000 from paying any federal income tax. House Ways & Means Committee Chairman Charlie Rangel (D-N.Y.) has tucked a new $700 above-the-line deduction for real estate taxes into his proposal to extend Alternative Minimum Tax relief for another year. While Rangel doesn’t say so, seniors who have paid off their mortgages and no longer itemize would be big beneficiaries of the new tax break.
This trend isn't just playing out in Washington. In Maryland, Governor Martin O'Malley has proposed doubling the state's $1000 income tax exemption for taxpayers 65 and older. O'Malley has included the idea in a bill that is otherwise filled with major tax increases, and he's done it at a time when the state faces a $1.7 billion shortfall.
This trend is troubling on many levels. Why are seniors more deserving of these tax benefits than, say, struggling young families? Why does Rangel want to provide yet another break to homeowners, who already enjoy not only $170 billion in tax benefits but also the equity in their homes. And, yes, despite recent mortgage market tremors, most long-time homeowners still have loads of equity.
Seniors already get an extra standard deduction on their federal returns and a tax break on their Social Security benefits. Most owe no income taxes at all. About half the states with an income tax also grant seniors a higher personal exemption and many also exempt at least some retirement income and even investment income. Many even grant those breaks to their highest bracket taxpayers, as long as they are over 65. The Institute for Taxation and Economic Policy estimates that Maryland seniors who earn below $20,000 would get less than 1% of the benefit of the higher exemption.
Within two decades, 20% of the U.S. population will be over 65. Do we really want to exempt them from more and more taxes, especially when so much government spending, through Medicare, Medicaid, and Social Security, will be for their benefit? Transferring even more resources from the young to the old seems like a big step in the wrong direction.