Should We Raise the Debt Ceiling to Pay for Grandpa's RV?

Treasury Secretary Timothy Geithner sent a dire warning out to our nation’s seniors in May concerning the $14.3 trillion debt ceiling, stating that Congress must “move as quickly as possible, so that all Americans will remain confident that the United States will meet all of its obligations -- not just our interest payments but also our commitments to our seniors.” Mr. Geithner, of course, was making reference to Social Security and Medicare.

Now, as Republican leaders, Congressional Democrats and the White House engage in their political wrestling match over whether or not raising the debt ceiling -- with or without government spending cuts -- is good for the economy, we should consider those areas where we can cut spending without impacting those who genuinely need government assistance. And one such area involves this country’s wealthy seniors.

Why is it that being a senior citizen in and of itself automatically entitles one to free medical insurance, prescription drugs and retirement benefits? Rather, if a senior cannot demonstrate financial hardship based on income level and net-worth then perhaps he or she should not qualify for Social Security and Medicare. These entitlement programs need to end for those with their own (and often very significant) financial resources. And, this is especially necessary if we want to preserve them for those impoverished seniors without external resources.

Certainly, these entitlement programs will never, ever inure to the benefit of this country’s youth, who will contribute far more during their lifetimes into them than their forefathers. Furthermore, for all of the media banter that the younger generations believe in “entitlements,” they in fact exhaust very little of the federal budget of what they are entitled - perhaps unemployment benefits at best. Yet, they receive broken promises from the federal government and entitlement glares from the seniors.

Another area of government waste to slash involves the mortgage interest deduction as it applies to interest on RVs, houseboats and vacation homes. The mortgage interest deduction alone is one of the federal government’s largest tax expenditures, costing the U.S. Treasury an estimated $131 billion in 2012.

Now, while interest on personal loans is generally not deductible under the tax code, there is an exception for debt secured by a “qualified residence.” And, unfortunately a taxpayer’s second home -- which includes RVs, houseboats and mobile homes -- is viewed as a qualified residence under the code. This, of course, is a hidden tax secret among the recreating community of America. In fact, a taxpayer can deduct interest on up to $1 million in debt securing his or her principal residence, and one additional second residence ($500,000 for married couples filing separate returns).

Taxpayers are also permitted to deduct interest on home-equity debt up to $100,000 (or $50,000 if married filing separately). A Class A RV containing all of the amenities of a traveling luxury hotel on wheels can cost a wealthy retiree anywhere between $50,000 to a whopping $900,000. And naturally a vacation home can also be a big-ticket item.

So, why exactly are we paying for the recreational lifestyles of others? Particularly, when it often involves those already leaning heavily on government entitlements?

As the August 2 deadline for raising the national debt ceiling draws nearer, let’s swing the deficit reducing ax at our subsidization of the many fancies of those with their own financial resources.

Rodney P. Mock, J.D., LL.M., is an associate professor of accounting at the Orfalea College of Business at California Polytechnic State University in San Luis Obispo, California.