Congress may, or may not, extend tax break for struggling homeowners. Until 2007, the IRS treated as income any debt forgiven in a short sale (but not, just to confuse matters, debt forgiven on an earlier “cash-out refinancing”). Pretty tough to pay tax on “income” you don’t have, so the other branch of our government gave the debtors a break and declared that a debt forgiveness didn’t count. That seems wise, but in the liberal interpretation of deductions, every dollar held by every American rightfully belongs to the government, so any deduction is counted as a tax break and a cost to the Treasury – hence, this tax loophole which, again employing he terminology of the regressives, is costing $1.3 billion, money that could otherwise be controlled and distributed to friends of Obama.
So what to do? One branch of the government is trying to ease the mortgage mess by paying banks $0.63 on the dollar to write off debt, the other, acting on the regressive’s concept of tax deductions, wants to capture that money by taxing it. Cross-purposes? Our government? Say it ain’t so.
* One could certainly make an argument against this tax forgiveness: a conscientious couple who settle for a $350,000 house because that’s all they can afford may be a little annoyed to see a friend buy a house for $700,000 and, after writing off the debt, continue living in a house twice as nice as theirs at no extra cost whatsoever. Another friend might have refinanced his house back when times were good, taken $250,000 in the proceeds and spent it as he pleased: Disney World vacation, new Mercedes, whatever, and, with debt forgiveness and no tax liability, make himself look like a genius and the good citizens look like chumps. Fairness to the fiscally prudent and punishment for the profligate, however, has never been part of the liberal agenda so we need no concern ourselves with that here.