MR. KOJO NNAMDIFrom the kitchen table to Capital Hill, it is tax season and everyone's got a calculator out. If you're a taxpayer, you're adding up the deductions you can take for home mortgage interest, charitable contributions, job hunting expenses and if you're a lawmaker, you're adding up the cost of all those deductions for the nation's bottom line.

MR. KOJO NNAMDIWith the rising alarm over the size of our national debt, there's a new urgency in Washington to get the country's income and expenses back in sync. A bi-partisan presidential commission has set trimming individual tax breaks as a good place to start. But some tax payers rely on those tax breaks to balance their own household budgets. What you need to know as you prepare your 2010 tax return. Joining us in studio is Sandra Block, personal finance reporter with USA Today. Good to see you again, Sandra.

MS. SANDRA BLOCKGreat to be here, Kojo.

NNAMDIAlong with Sandra is Kevin McCormally, editorial director with Kiplinger's Personal Finance. Kevin, always a pleasure.

MR. KEVIN MCCORMALLYThank you, Kojo.

NNAMDIPresident Obama has proposed cutting back mortgage interest deductions for high-income tax payers but his deficit reduction commission recommended phasing out mortgage tax breaks for everyone. What's the conversation on the national level and what would it mean for individual taxpayers? Sandra...

BLOCKWell, it would mean that owning a home would not be nearly as profitable in terms of paying your taxes as it is now. Anyone who does their own taxes will see this as soon as you deduct the mortgage interest. The amount that you owe goes way down and your refund goes way up. Now the argument against this is that it encourages people to buy bigger homes than they can afford and that it is discriminatory towards to the millions of people who rent because they don't get any deduction for their rent at all.

NNAMDIIn these belt-tightening times, lawmakers are complaining about earmarks and subsidies the nation cannot afford. Are tax deductions a form of subsidy?

MCCORMALLYOh, absolutely, that's the tax expenditures that the deficit commission says is $1.1 trillion a year sort of off the book spending if you're not collecting the money. That's the way they look at it. Now the deficit commission does not say they want to get rid of the home mortgage interest deduction completely, Kojo. They want to convert it into a credit at the 12 percent level so somebody who now is in the 15 percent bracket wouldn't see much of a difference in that but somebody who is in the 35 percent bracket would see the value of their subsidy for their home mortgage payments cut by about two-thirds.

NNAMDIWhat tax breaks would you be willing to give up if it meant a simpler tax system, one where you the average taxpayer could prepare your own tax return? Call us at 800-433-8850 or if the tax break for mortgage interest was abolished, how would that affect you? 800-433-8850 or send us an e-mail to kojo@wamu.org. Only about 1/3 of Americans actually itemize deductions on their tax returns, but the dollar amount of those deductions is huge. How much money is the government passing up by allowing mortgage interest deductions?

BLOCKWell, I suspect Kevin has the number, but it's trillions of dollars, I'm sure.

MCCORMALLYYeah, because I, you know, I -- it's 1.1 trillion for all tax expenditures together. Mortgage interest, I don't -- I don't have that specific figure for itemized deductions. But, Kojo, when I answered your question about what deduction people would be willing to give up, Russell Long, I think, summed that up when he was senate finance committee chairman, when he said, don't tax you, don't tax me, tax that fellow behind the tree. All those people who take the standard deduction would be more than happy to eliminate all the itemized deductions.

MCCORMALLYBecause it wouldn’t cost them anything. I'd be more than happy to give up the new 100 percent depreciation for business equipment, which passed last year because I didn't buy any business equipment last year.

MR. KOJO NNAMDISandra, what's the history of allowing homeowners to deduct the interest that we pay on our mortgages? The deduction really took off after World War II as an...

BLOCKBut that did...

NNAMDI...aid for the middle class.

BLOCK...that deduction is almost as old as the income tax itself. So it has -- and that's why, I think, this is such a large sacred cow. People have been able to do this and it speaks to, what I think, is very interesting philosophical argument going on, is to the extent that the tax coach should be used to encourage certain activities. And that's where it originated from, to encourage people to buy homes. And what we've seen in the last couple of years, in addition to the mortgage deduction, Congress gave people a really big tax credit on top of that to buy a home.

BLOCKSo for, you know, decades, Congress has given people a big tax incentive to go out and buy a home because we believe as a country that homeowners are better citizens.

MCCORMALLYAnd also, we believe, that the home -- the business of building homes and furnishing homes is a key component of the economy. And, I mean, that's where you're going to see that the real battle -- it's not just going to be tax payers saying, wait, I want a deduction. It's going to be the home builders and the realtor's saying, wait a minute, we've got to preserve home ownership in the country. It's a huge part of the economy.

NNAMDILet's talk about what you mentioned earlier, who we would rather see pay taxes, the guy behind the tree. Let's look at the contrast between national policy and personal finances. Even people who believe we need to cut the deficit, people who believe we need to eliminate government subsidies, don't want to give up their mortgage interest deductions. Even though, you say, it's a subsidy.

MCCORMALLYWell, no, I -- it -- of course, we don't want to give it up. I mean, but, you know, the trade off and...

NNAMDISaid we're against subsidies.

MCCORMALLY...well, Sandra and I were talking about this before, about what -- they way they bought tax reform in 1986. And why you don't you take that with where the rates are. That's what they promised, lower rates. The top rate right now is 35 percent. They promised to go down, maybe as low as 28 or even 23 if we get rid of all the expenditures. But as Sandra can point out...

BLOCKTax rates are really low right now. So it's not, like, if you -- as Kevin pointed out, if you're in the 15 percent tax bracket and they eliminate the mortgage deduction, you're not going to go down to 10. I don't think that's really on the table here. What they're saying is, we could make the tax code simpler and eliminate the deficit. Well, that sounds really good, but that is not going to affect your tax bill next year. People get very passionate about the deficit, but that's not something that is going to affect their pocketbook right away.

MCCORMALLYKojo, when we talk about how low rates are, we looked up these figures and when World War II ended, the cut the tax rate from 94 percent to 91 percent. The top tax bracket was 91 percent. The tax cut that they talked about a lot with John Kennedy's tax cut would stimulate the economy in the '60s. That took the rate down from 91 percent to 77 percent, more than double what today's top rate is. When we did the Tax Reform Act of 1986, where they bought off getting rid of a lot of subsidies, a lot of deductions, by lower the rates we went from 50 to 28 percent.

MCCORMALLYBut now we're just at 35 percent. It's, like, mortgage interest rates, how much lower can they go when they're right now a zero from the Fed. You don't have a lot of ammunition here.

NNAMDIWell, let's talk about the philosophical aspect of this, starting with Christy in Harpers Ferry, W. Va., Christy, you're on the air. Go ahead, please.

CHRISTYHi, yeah, I'm definitely in favor of eliminating the home mortgage tax deduction. I think, it's not only unfair to those people that rent but it's also unfair to those of us who did not buy more house than we could afford even without the homeowners tax deduction because we didn't want to get in over our heads if something happened. Either that or to our jobs and I think it's -- has definitely encouraged people to buy houses that they simply cannot afford, if anything goes wrong in their financial picture.

NNAMDIGlad you brought that up, Christy. Sandra, talk about the philosophical aspect of this. Can we, as a nation -- should we, as a nation, be able or should we be in the business of helping people buy homes?

BLOCKWell, that's -- as I said, that's sort of what's being debated right now. And to speak to the caller's point, we don't just provide a tax break for people to buy their first home. We let them deduct interest on their second home. We let them deduct interest if they take out a loan against their home to build a new kitchen. So we are subsidizing a lot of home ownership, a lot of home building and it would be interesting to test one of the arguments in favor of eliminating this deduction, is that it would lower home prices because to some extent, this tax break is built into the price of the home.

BLOCKSo this caller might've paid more for the home she -- than she would've otherwise if she didn't have a tax deduction for it.

NNAMDIKevin McCormally, let's talk politics because Sandra used the word, sacred cow, earlier. Some people say the mortgage interest deduction is like social security. Something lawmakers attack at their own peril. Does the political will really exist to phase this out?

MCCORMALLYI don't think so now. I think, it's going to take a crisis of some form. You know, tax reform, in general, is going to take some sort of crisis, I think, because, again, it's not just the question of the homeowners -- home building and furnishing. You know, the economy is so fragile right now that a very strong argument could be made that this would be a mistake from a tax standpoint, a tax revenue standpoint, to take this away because it might cost you more in reduced economic activity than you'd actually bring in with higher revenues.

MCCORMALLYYou know, in '86, where deductions were given up and rates came down, very shortly thereafter rates went back up and most of the deductions stay away.

NNAMDILet's talk about another sacred cow, deduction for charitable contributions, Sandra. The Presidents deficit rate reduction co-chairs recommended limiting charitable contribution deductions to two percent of a taxpayer's adjusted gross income. How big a roll does these tax deduction play in motivating people to actually give to charity?

BLOCKWell, as Kevin pointed out, only a third of people itemize. So -- and I think, the percentage of people who give in this country is very high. So there are millions of people giving money every year that they get absolutely no tax break for at all. I think, what -- one of the reasons that this is as controversial in my view is the mortgage interest deduction, it's because even though there's broad giving in this country, the very, very large gifts, the new library at the University and the new Hospital wing come from wealthy people who really do use tax planning as part of their giving strategies.

BLOCKAnd if you talk to some of the charitable groups, and a lot of them are based here in D.C., they're very concerned that any change in that deduction would hurt that giving. And they'll argue that, at a time when Congress is looking at cutting many social programs, the last thing charities need is anything that would discourage people from giving.

NNAMDIWell, some people say, one of the problems with the tax code today is that it's being used for social engineering. It offers deductions from everything, from adopting a child to replacing hazardous drywall. It's just too much, some people say.

BLOCKWell, that's, again, to me is old as the tax code and it's just a very popular thing for Congress to do. And it's very palatable in that these days no one is going to support giving money, you know, giving subsidies. Well, as Kevin point out, a tax deduction or a tax credit is an effect a subsidy. But it doesn't look that way. It doesn't look like you're standing on Capitol Hill and making an earmark.

BLOCKYou're basically cutting taxes and everybody favors that.

NNAMDIWe'll get back to the phones in a second. But we move on now to an update on what's new for taxpayers this year. Kevin, the IRS told us not to file itemized tax returns before Valentine's Day, why?

MCCORMALLYBecause Congress was so late in deciding what the rules should be for 2010. You know, it's just before Christmas, the battle over the Bush Tax Cuts consume so much time. Congress made their decision solely to reprogram the computers. The IRS just couldn’t do it before February 14. They are accepting returns now and we talked with some people yesterday and it seems like the filing season is going very smoothly this year.

NNAMDIWell, people who have been unemployed this year or who took a big pay cut last year may think they don't have to file a tax return. But apparently they do.

MCCORMALLYWell, sure. I mean, it all depends on how much income they made and I think it's about, for a married couple, it's about 10,000, $11,000 of gross income, you have to file. So if your income is down, you certainly may not owe as much but, you know, if you were unemployed last year, one break that was in the law in 2009, that disappeared in 2010 was the right to take the first $2,400 of unemployment compensation as tax free. On the 2010 return, the entire amount is going to be taxed.

MCCORMALLYSo I think people have just got to look at their entire financial situation to determine whether or not they have to file and unless they were unemployed for the entire year, odds are good that Uncle Sam's going to want a little money.

NNAMDIKevin McCormally is Editorial Director with, "Kiplinger's Personal Finance Magazine." He joins us in studio along with Sandra Block, Personal Finance Reporter with USA Today. We go now to the telephones staring with John in Arlington, Va. Hi, John.

JOHNHey, Kojo. Yeah, so I just have a couple of comments. The first is I definitely agree with your panel in that I personally am about as liberal as they get, but I don't care if the -- a right wing party's going to come out there. But if they -- if the democratic party votes against the homecare -- home buyer tax credits, than I see that as a direct attack upon the middle class. And I wouldn't vote for anybody, but whomever voted for them.

JOHNSecondly, though, I'm kind of surprised, though, with all these tax credits and tax cuts are being given to the upper income Americans and taking away from working families and middle class families, isn't this counterproductive? Isn't this going to cause a precipitous decline in the economic productivity of Americans? If you're going to keep taxing people who are out there, who are producing vast majority of the wealth -- of the wealth in this country, the work, the productivity, I mean, right now, I can definitely say that this...

NNAMDIYou're thinking of the average...

JOHN... (unintelligible) policy -- economic policy...

NNAMDI...you're thinking...

JOHN...is directly related to the child birth in this country. People don't want to have children because they're finding that they have a hard time affording it.

NNAMDISandra Block?

BLOCKWell, this was an argument that went on, I think, in 1986, that the wealthy were getting lots of tax breaks and that the middle class was paying the biggest tax bill. Personally looking at the political landscape, I don't see a lot of people who object to this as much as you might expect. Or at least Congress doesn't get on it, I mean, it's taken them two years. They've been arguing about whether to increase taxes on hedge fund managers. Which you'd think would be kind of a layup and it hasn't happened yet.

BLOCKSo the argument, I guess, the counter argument to what John is saying is that these wealthy people or businesses create jobs. So if you increase taxes on them -- I'm not saying I agree with this but this would be the argument that's out there, you increase taxes on them and then -- and thus stagnate job creation. That's certainly what the Chamber of Commerce would tell you.

NNAMDIHere is Melissa in Washington, D.C. Melissa, tell us your experience.

MELISSAHi, I just wanted to support the idea of refueling the interest rate deduction for mortgages. My husband and I, when we first got married a couple of years ago, we were under a lot of pressure to buy a house. And we looked at it and we decided not to, one, because we wanted to stay in D.C. and anything we could possibly afford, you know, we would've had to commute quite a distance. And we just decided that, you know, it would be more than we could take on.

MELISSAAnd then, when we did our taxes last year, we were really kind of shocked what happens when you don't have any deductions. And we just had this feeling, gosh, where is our incentive for not taking out a home that we couldn’t afford, or, you know, not commuting more than we'd want to commute and trying to walk to work and that type of thing. And now so -- you know, so we rent in a place that we love, that's real close to where we worked out -- works well for us. And yet, you know, we -- every year we do our taxes, it's a little scary.

MELISSAAnd I also just wanted to say that, you know, I just argue that it could be overstated that, you know, people who rent aren't investing in their home. I mean, we certainly, you know, take a lot of care where we live. We've, you know, spent a lot to try and furnish it, that type of thing. Our landlady -- we're getting a new stove put in tomorrow. So, I think, you know, it's maybe overstated that people who rent aren't investing as well in their communities and their homes where they live. And yet there's...

NNAMDIMS. ...

MELISSA...no reward for that.

NNAMDIKevin, Melissa feels that she and her husband lost out by not buying a home and not being able to therefore get any mortgage interest deductions.

MCCORMALLYWell, I guess I understand that at one level. But, you know, she also lost out because she didn't have a heart transplant last year and get to deduct the cost of that. You know, there are lots of tax breaks written in there that you don't really want to, you know, be rewarded. And, you know, even the renter, homeowner thing, I have a little problem with because the landlord is deducting the interest that he's paying on the property. The landlord is deducting the property taxes he's paying and that should be reflected in lower rent than if you were not allowed to do that.

MCCORMALLYSo, I mean, these tax breaks are insidious. They're everywhere and different people get different parts of it. Now, Melissa and her husband get to claim like a $13,000 standard deduction, I think, as a married couple. Even if they didn't have one dime of, you know, qualifying expenses as deductions. And everybody accepts the standard deduction as a God given right in this country. The Deficit Commission, even though eliminate all itemized deductions, everybody still gets the standard deduction.

MCCORMALLYWhich I don't understand, but -- so, I mean...

NNAMDIBecause it's not a God given right.

MCCORMALLYIt's a Congressionally given right. Which...

NNAMDIMelissa, thank you for your call. This on another issue from Morgan, "During 2011, I work with several staffing agencies as a temporary employee. I guess, this is during 2011 and have received a W-2 from those agencies. If I itemize my deductions, can I deduct the transportation costs, Metro fares and or car mileage of commuting from my home to the various work sites?

MCCORMALLYNo. It's (unintelligible) employee. Commuting expenses are never deductible. Now, if you're self-employed, you can deduct if you work in different locations, you can deduct some travel expenses, but never from your home to the first job of the day. If you go from one job to another during the day, those intermittent transportation expenses are deductible expenses, but, no, commuting expenses are just banned.

NNAMDIAnd this from Andrew, "Will the value of my home drop if the mortgage deduction is eliminated? Prospective buys will not be able to afford to pay what I did without the deduction. If the mortgage deduction is to be eliminated, it should be phased out slowly over 30 years or maybe 60 years to account for the lifetime of the owner. In other words, after I'm dead."

BLOCKWell, I think, he raises a point we were discussing earlier, now, the flipside of that is if the mortgage deduction were eliminated, then maybe he would be able to buy a cheaper home in the future because I do think that this deduction is built into the price of the home. It's calculated in how much you can afford and the argument is that it causes people to buy more home than they can afford. But he makes a good point, if you're trying to sell a home and your future buyers are basically ratcheting down how much they could afford to spend, they're going to want to pay less.

BLOCKAnd this just speaks to why this deduction is going to be really, really hard to get rid of.

MCCORMALLYAnd this works exactly the same as mortgage interest rates work. Because, basically, subsidizes mortgage interest rates. When mortgage interest rates were 17 percent in this city, you know, the people could not afford to pay as much for a home as you can afford to pay now when interest rates are just 3 percent. Now, our deduction is much, much smaller on a 3 percent mortgage than on a 17 percent mortgage. But people don't complain about that, about the deduction shrinking because their expenses have shrunk.

NNAMDINew reporting rules aim at getting people to more accurately report their capital gains when they sell stock. Financial institutions have to tell their clients the cost basis of the stocks they trade after January 1 of this year. What will that mean for individuals at tax time?

MCCORMALLYFirst of all, a lot of confusion because...

NNAMDIOh, yeah.

MCCORMALLY...it only starts this year for assets purchased this year. So if you sold something last year or even this year that you purchase before 2011, the basis reporting does not exist. Going forward, Kojo, I think it's going to be great thing. Because for securities that you buy this year or mutual funds that you buy starting next year, when you sell them the mutual fund or broker is going to have to send you a note saying, Kevin, here's your tax basis. You compare that to what you got when you when you sold it and you're going to know how much has to be taxed.

MCCORMALLYI like it because, I think, a lot of taxpayers overpay their taxes by understating their basis. They lose those old records, they forget that they reinvested dividends. It's a huge problem, I think. The IRS likes this rule for exactly the opposite reason. It's going to make it impossible to overstate your basis because the IRS is going to get a copy of this 1099 as well. It's going to say, "Kevin's basis was $1,000. He sold it for $2,000, therefore he owes you tax on $1,000."

NNAMDIHere is George, in Alexandria, Va. George, you're on the air. Go ahead, please.

GEORGEGood afternoon, Kojo. I'd like to offer just a little bit different perspective than what I think is often said about tax deductions for charitable contributions. You know, taxpayers often complain about how their money is spent. And there have been times back during the wars, the Vietnam War for example, when people would try to not pay whatever portion of their taxes they thought was going for something that they didn't like.

NNAMDIYep.

GEORGEAnd I think it's interesting when you look at it this way, that if I donate a $100 to a charity of my choice and the government, in effect, subsidizes $25 of that because I'm in the 25 percent bracket, then here is one opportunity that people have to, in a certain sense, direct some of the Federal governments tax dollars toward what they want -- that $25 goes to what they have selected instead of what somebody else's selected.

BLOCKI guess, the argument against that, George, would be, what if I don't care for the charity that you are contributing to? I -- other taxpayers, in effect, are also supporting that contribution and I've spent enough time covering charities to know that it is a mine field of personal opinions. And should the government really go in on that, I'm putting that out as the devil's advocate, I -- again, I don't think that deduction is going anywhere. But it's an interesting argument.

NNAMDIIt certainly is. Thank you for your call, George. Here is Gene in Aspen Hill, Md. Gene, you're on the air. Go ahead, please.

GENEHi Kojo. I had two points on the housing interest. One is renters get the benefit of the landlords paying interest to the bank when they built the house, and that would certainly -- if they couldn't deduct that as a business expense, then they would be charging the renter more. So the renter does benefit from the business that exists. The second thing is that clearly the house is an investment. You can take out a second trust, which is much like selling stock if you'd been investing in stock.

GENEAnd if you buy stock, you can deduct the interest if you borrowed the money to buy the stock. So it seems to me that the interest payment for the house is strictly a cost of maintain an investment. And the same thing if you redo the kitchen or whatever, you're trying to keep the value of the house up, and you're going to recover that cost as an investment later.

NNAMDIClearly the house is an investment, Sandra Block.

BLOCKWell, I think the economic collapse really has laid -- raised some questions about that, and as a personal finance reporter, what I often tell people is when they buy a home they should not think of it as an investment. They should think of it as a place to live, because what got us into a lot of trouble, and I'm not -- the caller makes some very good points. But as a personal opinion, I think that if you make money selling a house, that's just luck. It should not be your goal.

NNAMDIGene, thank you very much for your call. Kevin, you wrote recently about how taxpayers can keep more of each paycheck, even if it means a smaller refund at tax time. Talk about the new payroll tax law, and the possibility of changing your W-4 form to reduce your withholding.

MCCORMALLYWell, I think, you know, we know that like 75 percent of all taxpayers get refunds. Sandra and I were talking about this earlier this year -- earlier today, because she for a change is not going to get a refund this year.

BLOCKAnd I'm really upset about it.

NNAMDIIt just goes to show.

MCCORMALLYAnd we all love our refunds, but, you know, I just encourage people to try to match their withholding at work to what they're actually gonna owe. I think that it's a mistake for people to get that two or $3,000 refund, and last year the average was $3,000.

BLOCKAbout 3,000, yeah.

MCCORMALLYAnd a hundred million people got $3,000 on average. And then this, you know, in April and May, people are thinking, well, I didn't pay any taxes last year. The government sent me a check. And it's a return of your hard-earned money, and the W-4 form is the one that tells you -- we've got a little calculator of kiplinger.com that tells you how many extra allowances you can claim to match withholding to what you're actually gonna owe if your financial situation stays pretty much the same, and that's all, you know. Refunds are great, but they're really not a great idea.

NNAMDIGot a lot of calls waiting, but we do have to take a short break. When we come back, we'll try to get back to your calls as quickly as possible. If the lines are busy, go to our website, kojoshow.org, ask a question or make a comment there. I'm Kojo Nnamdi.

NNAMDIWe're talking tax filing and tax law with Sandra Block, personal finance reporter with USA Today, and Kevin McCormally, editorial director with Kiplinger's Personal Finance Magazine, and taking your calls at 800-433-8850. Kevin, let's look at some of the deductions that people often overlook. Most of us remember to deduct the checks we write to our favorite charities, but what about the out-of-pocket costs of the good deeds that we may do.

MCCORMALLYWell, that's one, you know, I've -- some people in my church make casseroles every week for a soup kitchen which is a non-profit, and everything they spend on that they can add up and add to their cash donations. And that's -- people who drive in charitable work can add that up too. Now, it's interesting because we're gonna lose this deduction I guess under the Deficit Commission Plan, so we won't have to keep track of it, but there are all sorts of things.

MCCORMALLYKojo, I think the one deduction this year that is most in jeopardy of being overlooked, is one for self-employed people. And they can deduct their health insurance costs. And this is the first year, and actually the only year, that they can actually deduct those health insurance costs against their self-employment tax. And when IRS drew up the new forms, I think they really hid this deduction, because we all thought that the deduction for health insurance for self-employed would show up on the Schedule C, which is where the deduct all the rest of their expenses.

MCCORMALLYAnd instead, the IRS put it on the Schedule SE where they figure their self-employment tax. And the line doesn't say, enter your qualifying medical expense insurance deductions. It says, enter the number from line 29 on your 1040. And we just heard from a lot of people who say, where the dickens do I get to deduct this. It's sort of hidden, and I think a lot of self-employed people are gonna miss it.

NNAMDIAre job hunting costs deductible?

BLOCKYes, they are, as long as you are looking for a job in your same profession. If you are a lawyer who decides to become a chef, you cannot deduct the cost of getting training or looking for a job as a chef. But if you were a lawyer looking for a job as another lawyer, then you can deduct your job hunting costs.

MCCORMALLYI think the idea is the IRS doesn't want you going from a lawyer who is making a great deal of money for them to tax, to a chef who made very little money for them to tax. They don't want to subsidize that move. But if it's in the same line of work, your job hunting expenses are deductible.

NNAMDIHere's Paul in Arlington, Va. Paul, you're on the air. Go ahead, please.

PAULYes. I wanted to talk about a tax deduction that's a little bit obscure, but it's very important, and it's complicated, but I'll try to make it short. This is the tax deduction for revenue bonds that are issued for various kinds of transportation improvements, and other improvements also, but I'll focus on transportation. You know, people sometimes -- railroads in the United States carry more than 40 percent of the freight traffic, but they still have had problems in recent years, and people sometimes give sort of esthetic or emotional reasons why railroads have had problems to an extent that highway and aviation transportation haven't.

PAULBut a very concrete reason is that aviation and highway improvements are often paid for by revenue bond issues whose interest is deductible, maybe -- I think usually on your state income tax. And that's a huge advantage because it means that those bonds can pay a lower rate of interest than they otherwise would have to. Whereas railroads, if they want to make an improvement in their trackage or other things, they have to borrow money on strictly commercial terms or generate it commercially or, you know, raise it from stockholders by sale of stock.

PAULIt used to be decades ago the railroads complained bitterly about this inequity in funding of transportation improvements, and it's largely been forgotten about, but it's still very important.

NNAMDII have not a clue.

MCCORMALLYWell, I don't think the revenue bonds, that there's a deduction for that. I think he's talking about some sort of tax-free municipals bonds or something that you don't report the interest on.

BLOCKWell, and I think -- and I'm not an expert at all on railroads, but I do think he raises another issue that's interesting to me when we look at our sacred cows. One of them we didn't discuss is municipal bonds. We do allow all of the localities and states in this country to raise revenue and issue bonds that are very attracting to people in upper income levels, because they do provide a very big tax break. And I -- Kevin, I don't know if that's on the deficit commission, but it is one of the things the deficit commission has looked at.

BLOCKAnd I think if they got rid of that, it would not only affect individuals, but it would have a huge affect on states and localities and their ability to raise money. Because as the caller points out, the ability to issue tax-free bonds is a very powerful tool for raising money, because they are very attractive to investors. They have been very attractive in recent years because interest rates have been so low that they've provided one of the few decent returns for people who make enough money to benefit from them.

NNAMDIPaul, thank you very much for your call. Kevin, filing tax returns electronically is becoming more popular than filing on paper. What are the advantages of e-filing?

MCCORMALLYWell, one of the key advantages is it's less likely there'll be a mistake made on your return. The error rate on electronically-filed returns is very low, in large part because there isn't a human being at the IRS who has to try to figure out the scratches you put on your tax return and what those numbers are supposed to mean when they put them in. And, of course, the IRS pushes this. It's much cheaper for the government to process these returns.

MCCORMALLYAnother advantage is, if you have a refund, which as we said, most people do, you'll get your money much faster if you file it electronically and have it deposited directly to your bank. All sorts of ways to do this for free at irs.gov free file. Anybody who makes less than $58,000 a year can use a program for free. If you make more than that -- and this is new program for people who like to do it on paper and pencil, but would like to file electronically, the IRS has a system called Fillable Forms -- FreeFileFillableForms.gov, and there you can -- you do it on paper, and then you just transfer your numbers to electronic forms and then can ship them to the IRS to speed things up.

NNAMDIAnd the IRS introduced a Smart Phone app this year that lets you check the status of your refund.

MCCORMALLYI think they tweeted that as well.

NNAMDIHere is Carl in Slanesville, Va. Carl, your turn.

CARLYeah. I was wondering, if you started to drop the deductions, how long would it be before like 90 percent of the people were standard and somebody would have the idea that the standard was in excess of what it should be and start talking about cutting the standard deductions?

NNAMDIGod-given right. About 15 minutes, Carl.

MCCORMALLYI think you're a cynic.

CARLBecause that -- that was my thought. So when you talk about all the people that are on standard deduction as if this wouldn't matter, I really wonder for how long it wouldn't matter.

NNAMDIGood question, or good point. The complexity of the tax code leads to a booming business for tax preparers, and a thriving marketplace for tax preparation software, doesn't it?

BLOCKOh, yeah, it does. It's huge. I mean, the percentage of people who actually sit down with paper and do their tax returns is shrinking every year, and tax software is becoming more and more popular as these tax software companies have come out with increasingly sophisticated programs...

NNAMDIYeah.

BLOCK...that allow people to do things that you never would have dreamed that you could do yourself before. And personally, I think even if you're not gonna pay somebody, you ought to use one of these programs just to run through your taxes sometime just to figure out how much you owe. Most people just really do not have -- they think they're taxed too much, but they really don't know how much they pay. They don't know how much they get from the mortgage interest deduction.

BLOCKThey don't know how much giving to charity benefits them. I think that makes you a better informed citizen, and a smarter tax payer.

MCCORMALLYI think Sandra mentioned earlier too with these programs, most of them have a running tally of what your refund is, or amount due. So when you do enter in that you paid $10,000 in mortgage interest last year, you suddenly see your tax bill shrink by $2,800, and it is instantaneous. It is a great reminder of the value of these benefits.

NNAMDIHere is John in Hampstead, Md. John, you're on the air. Go ahead, please.

JOHNThank you. My daughter recently got a new job that required her to purchase a computer and to work from her home. Is the cost of the computer and/or other expenses associated with working at home a business deduction?

MCCORMALLYIf she is indeed required to work at home, and she's required to have the computer, then it can qualify as an employee business expense. However, that's a deduction that only has value to the extent that the expense exceeds two percent of your daughter's adjusted gross income. So if she makes, you know, $40,000 a year, the first $800 of the cost of that computer wouldn't count. But she should look at the employee business expense rules in Publication 17 of the IRS at IRS.gov will explain that.

MCCORMALLYBut she has to be required to work at home. It can't be because it's convenient for her to work at home. Part of the deal with her employer has to be he's not providing space for her, she has to work at home.

NNAMDIJohn?

JOHNThat's right. That's right. She's...

NNAMDIHas to.

JOHN...required to work at home. So thank you.

MCCORMALLYOkay.

NNAMDIYou're welcome. This we got from Bruce in Arlington. "I think we need to eliminate all deductions and credits. They favor certain groups that have a louder voice in Washington, and should be eliminated to level the playing field. I'm a homeowner, and would stand to lose. I have children for whom I get a credit, but I need to pay my fair share." How American is that? How un-American is that?

BLOCKI bet he has a small home. You know, one thing we didn't mention that -- in addition to renters who don't benefit from the home interest deduction, older people very often don't get benefit from that deduction either because they've paid off their mortgages. And I hear from them all the time. They feel that to some extent, they're being discriminated against as well because they've done a good thing and paid off their mortgage, and now they're paying more in taxes.

NNAMDIHere is Ralph in Washington. Ralph, your turn.

RALPHHi Kojo. I hope you can bear with me, you know, because I'm kind of getting tired of -- you know, I'm an investor, and I'm kind of getting tired of these people talking about, you know, cutting taxes and cutting back on Medicaid and making grandma eat one can of cat food versus two, you know. We -- if you want to see the distribution of wealth from tax breaks to the wealthy, go see Mother Jones this month online. Look at her talk and look at the graphs.

RALPHThe wealth distribution is obscene. In the last ten years we've had a 70 percent increase in the number of billionaires. You know, Congress -- here's an example of how you can 100 to $200 billion by closing one loophole. Congress, in three separate times, has voted down the requirement that a 1099 report the profits that you make on options. I had an accountant actually tell me that I should not claim those profits because nobody else does. There's a trillion dollars with these profits that are not being claimed every year, and everybody knows about it, and it's one big joke.

NNAMDIOkay.

RALPHAnother point is Gingrich...

NNAMDIWe're running out of time though.

RALPH...Gingrich took 100 and some IRS agents and redirected them to the bottom 10 percent of the income bracket instead of the people at the top. You got -- Warren Buffet says there's something wrong when I pay 16 percent of my income in taxes, and my secretary pays 36 percent. You got the heir -- one of the heirs of the Johnson & Johnson people saying I don't pay any taxes, because by the time I get done hiding all my income in one corporation after another, I pay nothing. So, you know...

NNAMDIWell, allow me, Ralph, because we're running out of time, allow me to have Kevin McCormally reiterate a point he made earlier, because I don't think it really took hold. It's almost unpatriotic, Kevin, these days, to talk about increasing taxes, but as you pointed out earlier, and I'd like you to point out again, we've had much higher tax rates at various times in the past, and yet somehow the economy kept going.

MCCORMALLYThat's right. I mean, again, I looked at the figures. In 1946 they reduced the rate to 91 percent. During the Eisenhower years it was 91 percent. Somebody mentioned the Vietnam War earlier. When the war was going, 1969 not only was the top rate 70 percent, but Congress actually -- and nobody's gonna believe this, particularly on Capitol Hill, congress actually imposed a 10 percent surcharge to pay for something, to pay for the war in Vietnam, and believe it or not, there was actually a surplus in the budget that year.

MCCORMALLYSomehow those things might work together. But, I mean, there have been much higher rates than that. Sandra's had...

NNAMDIAnd what's the highest rate now?

MCCORMALLYThirty-five percent.

NNAMDIThirty-five percent, and we're complaining.

MCCORMALLYThe huge fight last year, was whether or not to allow it to go back up to 39.6. And as Sandra said earlier, this is one of the biggest problems for tax reform, is because rates are at historically low levels now. It's gonna be hard to buy off people to give up all of their deductions for lower rates.

NNAMDIKevin McCormally is editorial director with Kiplinger's Personal Finance Magazine. Thanks for joining us, Kevin.

MCCORMALLYThank you.

NNAMDISandra Block is a personal finance reporter with USA Today. Sandra, good to see you again.

BLOCKGreat to see you too.

NNAMDI"The Kojo Nnamdi Show" is produced by Brendan Sweeney, Tara Boyle, Michael Martinez, and Ingalisa Schrobsdorff, with help from Kathy Goldgeier, Elizabeth Weinstein and A.C. Valdez. Diane Vogel is the managing producer. Our engineer today, Andrew Chadwick. Dorie Anisman has been on the phones. Thank you all for listening. I'm Kojo Nnamdi.