13.5: Deductions & Credits
Allow only three types of deductions. Other Information:
Few Deductions or Credits. Under the Heritage tax plan, the individual income tax has only three deductions instead of the
legion of deductions under current law: * Higher education. Recognizing the role of higher education as a form of saving and
investment in human capital, a deduction is allowed for tuition and expenses for higher education up to the average annual
cost at a four-year public college or university. * Charitable donations and other gifts. Since the tax is levied on consumption,
gifts are not taxable until they are spent by the recipient. Thus, per current law, gifts to nonprofit organizations are tax
deductible if the organization is recognized as tax-exempt for tax purposes. Gifts to individuals and transfers through inheritance
are deductible and become taxable to the recipient only when spent on consumption. And there is no death tax. * Mortgage interest.
As under current law, homeowners can deduct mortgage interest while the lender continues to be taxed on mortgage interest
income. Homeowners are also given the option of forgoing the deduction, in which case the lender is not taxed on mortgage
interest income and market pressure would encourage the lender to offer a lower mortgage interest rate.
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