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Tax issues face Congress

One proposal in congress calls for dumping your home mortgage interest deduction for a credit instead. What does that mean? Not much on the surface according to University of Louisville law professor Norvie Lay.

Norvie Lay

"Over the years there have been incentives. There was an actual credit for buying a new home. So we use tax not only as a revenue-raising measure but also as an economic factor, too."

Lay says eliminating the deduction and inserting a credit may not change the end result for some tax refunds. But the change could have the economic potential of slowing down the housing market.

Lay continues

"If there aren't as many homes being built, there will be fewer appliances sold, fewer people employed. It's a cycle. You're just shuffling money from one pile to another, but there's no idea as to the end result from that. It could have an impact on jobs, salaries, and in the end, income tax."

Another tax issue facing U.S. lawmakers is the alternative minimum tax, which is a confusing tax designed more than 30 years ago to make the extremely wealthy pay their fair share. But this tax hasn't adjusted with inflation over time and unless Congress comes up with a fix, Lay says more than 19 million Americans could be hammered with a higher tax clearly not designed for them.

Lay adds

"Those who worked hard to improve themselves economically may wind up with less spendable income than before. "There is a limit to how much someone can give out of their income and have a good quality of life."

Those hit hardest would be married couples who have children and whose income roughly starts at 75 thousand dollars. Lay says Congress still has time to make the long-needed changes before this tax hits Americans when they file in 2007.

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