SIDNEY, BC, Jan. 19 /CNW/ - I am pleased to announce today that Congress
has come together on a non-partisan basis to ratify a decision that
will improve the way Americans deal with the interest-expense deduction
on their residential mortgage at tax time.
It is becoming evident that most countries around the world - including
our own - are recovering from a worldwide financial crisis.
Responsible governments are now turning their attention to eliminating
deficits and reducing debt. We are taking that responsibility
seriously. A coordinated bipartisan effort against deficit and debt
will allow us to look forward to a resumption of economic growth over
the years ahead.
With the cooperation of both Houses of Congress - and with a helpful
idea from our friends in Canada - we are in agreement that it is time
to phase out the current giveaway of tax deductions for mortgage
interest. That's the bad news.
The good news is that a superior program is being put into place that
will allow mortgage holders to convert their current mortgage balances into investment capital on which the
interest expense will be tax deductible. Our existing program will
phase out at 10% per year for 10 years, and the new program will phase
in at the same rate, or faster.
Several developed countries including Canada, Australia, Germany and
Japan do not allow residential mortgage interest to be deductible. In
Canada though, over the past 27 years, thousands of Canadian
residential mortgages have been converted such that their interest expense is now deductible. It is being done
with the tacit approval of the Canadian government.
Homeowners in Canada have learned how to implement The Smith Manoeuvre. This is a strategy that gradually converts their non-deductible mortgage loan into a deductible-interest
investment loan. The amount of the debt does not increase, it remains
constant, but the interest on the debt gradually becomes deductible.
In this fashion, Canadians are able to generate mortgage-interest tax
deductions just as we have always done in our country. We give our
deductions away - Canadians earn theirs by investing every month for
their own future security.
The mechanics are simple. Each month, the amount of principal reduction
of the first mortgage is re-borrowed and invested to produce income.
The interest expense on the re-borrowing is tax deductible in both
countries. We are distributing a Canadian article published in 2005 by
Firstline Mortgages, a subsidiary of the Canadian Imperial Bank of
Commerce. The article explains The Smith Manoeuvre in detail.
http://www.smithman.net/resources/The 500 Billion Mortgage
Our current residential mortgage interest-deduction program gives away
over $100 billion each year. This will amount to over $1 trillion in
tax refunds over the next 10 years if left unattended, with no
offsetting new investment made. We simply cannot continue to let the
US Treasury hemorrhage in this fashion, with next to nothing beneficial
for our country coming back.
In America today, the current mortgage debt has grown to exceed $10
trillion. Our new program would make it possible for that same $10
trillion to be converted to new investment. It does not require a
mathematician to demonstrate that $10 trillion in incremental
investment will be very good for our economy. The IRS will be
delighted to provide tax refunds in exchange for new investment. Why?
Because they will have new tax targets in the form of those new
businesses and new employees that our new tax program will foster.
In either scenario the tax loss to the US Treasury will exceed $1
trillion dollars over ten years. However it is apparent that our
current system is not facilitating investment while the Canadian
strategy does. Imagine this: $1 trillion in tax deductions over ten
years would mean that we had generated $10 trillion in new
investments. Any fraction of that amount is worth the effort.
There is an important synergistic effect. Trillions of dollars in
personal investment would be incremental to government and corporate
pension plans. We can view these new investment pools as personal
pension plans. This will reduce the pressure that is mounting on our
stressed Social Security programs.
Up until now, our mortgage interest tax policy has been a giveaway -
there is currently no quid pro quo for the tax refunds gifted to mortgage holders. That is about to
change. All American taxpayers, including those that do not own a home, pay for those tax refunds. The Smith Manoeuvre gives homeowners their tax refunds, but only if they are willing to
provide a quid pro quo by converting their mortgages to investment loans over time.
In summary, introduction of The Smith Manoeuvre will enable us to end an unsustainable tax giveaway on a phase-out
basis, while simultaneously substituting Canada's proven alternative on
a phase-in basis.
Both houses and both parties concur that this is an elegant and
egalitarian way to solve what some have thought was an intractable
problem. Nothing much exceeds the power of all of us working together
to improve the lives of all Americans.
I would like to offer my personal thanks to my colleagues in both Houses
of Congress for assisting in this historic improvement to our tax
program. And thank you Canada - you are a great neighbor.
Fraser Smith is the author of the Canadian best seller entitled "The Smith Manoeuvre: Is Your Mortgage Tax Deductible?" As a retired financial planner, Smith is confident that this
Canadian-made mortgage debt-conversion strategy could go a long way
towards eliminating the 100 billion dollar tax leakage experienced
every year in the United States. The strategy relies on the fact that
in both Canada and the United States, interest is deductible if money
is borrowed for investment. In Canada however, interest is not
deductible on loans taken to buy a home - unless the Canadian homeowner
utilizes The Smith Manoeuvre. Smith's simple suggestion is that the US government phase out the
giveaway deduction, but simultaneously encourage homeowners to convert
their loans to investment loans utilizing The Smith Manoeuvre. If that was agreed in Congress, President Obama could convert this
mock speech to the real thing.
SOURCE The Smith Manoeuvre
For further information:
Name : L. Olson
Phone: (250) 656-7077
Name : L. Olson
Phone: (250) 656-7077