So much political capital was placed into upping the cap for deductions on state and local taxes that another loophole that is killing many middle- and upper-middle-class homeowners is still on the books.
I’m referring to the $500,000 capital gains exemption when you sell your home. Years ago, Congress implemented a law that would shield single homeowners from paying any capital gains taxes on the first $250,000 upon the sale of their primary residence. That amount was doubled to $500,000 if it was a couple who owned the house.
But this was passed decades ago, when prices were lower. Inflation has brought the average home price in Suffolk County to more than $700,000, while, in Nassau, the price easily exceeded $850,000 in Nassau. That means 46% of New Yorkers will be hit with a capital gains tax when they sell their home.
It’s a very easy fix. Just double the exemption to $500,000 for single owners and $1 million for a couple. Let’s hope our delegation can get this through.
So how do we pay for the loss of revenue from making these adjustments? It really isn’t that hard to get control over federal spending if our officials really wanted to.
Ultimately, on the federal level, what’s needed is a balanced budget amendment that forces prioritization amongst our lawmakers.
It’s amazing how much easier it is to say no to a special interest group wanting additional money when the lawmaker can say he’s restrained from adding it because of caps imposed on his spending capabilities.
On Long Island, we were experiencing annual school tax increases averaging 6% in the years leading up to our property tax cap. In the decade that followed, that 6% dropped to 2% a year.
DOGE made a valiant effort, but most came to realize that if we really want to curb the humongous spending appetite of the federal government, we must deal with entitlements and mandated spending.
One mandated category is interest on the debt. It has grown exponentially and is now at 13% of the budget, a figure larger than defense. That beast can be tamed with a better economy, spending controls and lower interest rates that will come about when spending is actually controlled. For every one percent drop in the interest rate, hundreds of billions of dollars are saved in paying for this debt.
Medicaid has grown well beyond its original plan back in 1965 to deal with those under the poverty line. It now encompasses those well above the poverty level, and it also includes illegal immigrants and those who refuse to work.
Efforts to reform this program to save it are laudable. Regarding Social Security, there’s a rather easy fix. As our Center for Cost Effective Government paper noted this spring, investing a portion of the trust fund in a conservative Standard and Poor index fund can quadruple the rate of return within the fund, thereby saving it from collapse.
As to all other mandates, elected officials on both sides are uneasy about putting their toe in the water. That’s because the slightest talk of cuts or reforms will be met with the opposition and the media claiming they’re trying to kill grandma. The solution is to create a bipartisan panel of six individuals — three Democrats, three Republicans — who will issue a solution to save these programs.
But no white paper will be issued unless there is an affirmative vote of four members, two of whom hail from each of the two parties on the panel. This gives cover to both sides moving forward.
And if they’re still scared to take affirmative steps, they can mirror what was done with closing military bases after the collapse of the Iron Curtain: create another BRAC commission, in which Congress authorizes the independent commission to make the cuts Congress won’t, with the proviso that Congress will have the ability to undo the cuts through an affirmative vote in Congress.
DOGE put us on the right track, but we need to take more practical steps to actually effectuate significant cuts by the departments themselves.
Finally, we need the one penny plan, which would require every department to cut one penny out of every dollar spent. Any department head who says they can’t do this should be immediately fired. Every business owner and head of household does this on an annual basis to keep their heads above water. Why should our government be exempt?