Posted on 06/18/2012 9:48:44 AM PDT by Shout Bits
Shout Bits has argued that the Mortgage Interest Deduction is not so helpful to regular Americans, but with interest rates at historic lows, now is the time to eliminate this market distortion. Not only does the MID encourage buying unaffordable homes and promote market bubbles, the primary beneficiaries are wealthy individuals as large banks. Eliminating this deduction would actually help most ordinary homeowners.
For 2012, a couple filing jointly can claim an $11,900 standard deduction, even if they have no otherwise deductible expenses like mortgage interest. Therefore, the first $11,900 in mortgage interest paid by such a couple generates no tax savings for them. Today's national average 30 year fixed mortgage coupon rate is 3.8%, which means that a mortgage smaller than $313k (11900/.038) generates no tax savings for a couple filing jointly. Now, a $300k mortgage is not unheard of, but it is clearly not for the struggling working class.
Since the first $313k of a mortgage balance is not deductible, the tax incentive is to borrow as much as possible. After all, Uncle Sam is kicking in about a third of the interest expense above $11,900. Further, the tax code discourages paying down mortgage balances, since as interest payments fall, so does that tax benefit. This perverse incentive leads to speculative bubbles which burst when incomes fall below the point where an income tax deduction is available. The MID certainly contributed to the real estate crash of 2008.
Worse still, a recent study by Andrew Hanson at Georgia State University concludes that the tax code's reach into the mortgage market increases mortgage rates for modest homeowners. Mortgage lenders siphon off 9 to 17% of the government's subsidy intended for homeowners (as much as $1.7bln per year) in the form of higher rates. Not only does the MID not benefit smaller borrowers at all, according to Prof. Hanson's study, it costs them hundreds of dollars extra, even if they cannot take an interest deduction.
It is always wrong, corrupt, and perverting for the government to manipulate markets as it does with the MID, but now is the perfect storm of minimal benefits and maximum harm. Mortgage rates cannot fall much further due to structural cost limits, so the interest deduction benefit is nearly as small as it ever can be. Likewise, with tighter lending criteria, only the well-off can qualify for loans big enough to earn an interest deduction above $11,900.
With the Federal Government looking for ways to raise taxes, the very worst choice would be raise marginal rates. Instead, a flatter and broader based tax code is the answer that is more just and stable. Eliminating a deduction that only benefits the well-off, while harming modest borrowers and enriching big banks, is an obvious choice. The time is now.
Shout Bits is available on Facebook: http://www.facebook.com/#!/ShoutBits
“Eliminate property taxes so that we can truly own our homes and land, instead of paying rent on them to the government, and we’ll talk about getting rid of the mortgage deduction.
Right on the mark. In my case, I’m paying HIGHER property taxes than my mortgage!
shout bits, what’s your opinion?”\
I would like to see a tax system like that proposed by Steve Forbes - one low flat rate with no itemized deductions. All of these deductions are market disruptors that stifle economic growth. Furthermore, itemized deductions are fodder for political graft.
Also, I might add that deductions for things like state taxes, property taxes, and MID favor the expensive states largely painted blue every four years.
“Oh yeah, just what the crippled housing market needs now. The final nail in the coffin. Oh, yes, this is just great advice. And I guess you go around making loud noises behind heart attack victims and kicking the canes away from cripples.
Nice. Brilliant.
Don’t get me wrong, I don’t think there should ever have been a mortgage tax deduction. You want a house, get it. Don’t expect me to subsidize your purchase.
Of course, I probably would not have bought a house 3 years ago if there was not a mortgage tax deduction, because I just felt renting was a more cost effective option without the deduction. The deduction made a difference in my decision, so if you end it now, you better grandfather me in or be prepared to take incoming hot lead from a furious homeowner who was duped. You can’t change the rules in midstream.
Yes, I am all for ending the mortgage tax deduction, but it would be economic suicide to do so in an economic depression that is housing based, with the housing market still a mess amid 4% mortgage interest rates.
AFTER the US economy recovers and AFTER home sales and prices rebound, then feel free to eliminate the mortgage deduction for NEW BUYERS.
The fact is, you are dreaming if you think the home mortgage deduction would ever disappear. The housing industry lobby will never allow this. Never. You are dreaming.”
You might be interested to know that I build houses for a living and am a Realtor as well. Some form of a gradual transition is probably OK, but IMO a part of the crash of 2008 is due to the government’s subsidy for people to borrow as much as they could (with Fannie Mae being the biggest element of the problem).
Maybe I am dreaming, but WordPress is free after all.
Sorry but it is not slavery. That is a specific term having nothing to do with taxation. I don’t care if it FEELS like slavery it is not. Let me know if you are being sold downriver to the cotton fields and I will reconsider.
Interest deductibility had little or nothing to do with the current collapse.
The root of the problem lies in the idea that people who could not afford or pay for ANY house were allowed to buy them because the Democrats were trying to buy votes.
If talk of reforming SS is fatal for a politician this idea is even MORE fatal.
Of course interest rates will never go up again, ever...certainly not to 1980s levels.
You gave no examples relevant to the issue. And did not even address the problems wrt the one, FICA, which has a little relevance. There are no FICA taxes coming from the Welfare Class which is the biggest RAT constituency and the biggest group pushing for higher taxes.
It should be utterly obvious where the push for higher taxes comes from, even if you do not like it. This refusal to admit where the problem comes from is standard from the Super “Conservatives” who cannot elect ANYONE and prefer to proclaim there is no difference in either party. In truth, it is not a matter of parties per se but the People which gets the government it deserves and, in our case, has kept the Democrat Party alive strictly as an instrument of Class Warfare. And it is PRECISELY those who do not pay income taxes who are the bulwark of this party.
Your slam at Weicker has nothing to do with any of this.
Your last line sums up the only real point in this entire thread and I agree 100%.
Question the premise...the Feds DO NOT suffer from a shortage of “tax revenues”......
When they’re talking about taking the passports of people who are behind on their taxes, that’s different from being sold down the river only in degree.
“...make everyone who works pay it (as opposed to only half of the those who work), and then we can talk.”
Almost got it. “...make everyone who receives income such as via government checks, pay it.” This now includes the welfare hos, etc. EVERYONE MUST PAY the flat tax.
No, it is just an negative consequence. Not a positive action which is a requirement to be slavery. And, never fear, such a step would only be necessary against the big RAT cheats.
Generally the ones who are the biggest supporters of that party are the biggest criminals and wind up owing millions to everyone. So that will never become law. How are the Marc Riches and the Soros types going to be able to enjoy their stolen millions with that kind of law?
I would even go so far to say that those who “owe” the gov big money owe even more people even more money.
Screw all the little special deals for special people in the tax code.
The tax code should be a 500-word document, not a 50,000 page document.
“Like I said, you are about to get the hyperinflation you deserve. “
so are you
“Screw all the little special deals for special people in the tax code. “
What don’t you get? The system is built on interest being deductible. If you change that you are implementing a massive tax increase which would devastate the economy even further.
“The tax code should be a 500-word document”
This bloggers suggested change would do nothing to get us closer to 500 pages.
Screw you!!
I agree! Perpetual property taxes are unconstitutional.
Yes, the 2008 crash was the bursting of an asset bubble. Housing. Government subsidies and especially really cheap interest rates through 2005 are to blame.
What goes up must come down. And it did.
Like I said, I agree there should not be a mortgage interest deduction to encourage home ownership. Where we disagree is you said it was perfect timing due to low interest rates. I think it is terrible timing because we need housing to stabilize at its actual value.
Taking away the mortgage interest deduction will cause the actual value of homes to fall from having the deduction. I think we need that fall, but not now in the middle of an economic depression, and not until housing stabilizes as is with the deduction.
Once housing stabilizes and the economy rebounds (and it may take 20 years for this for all I know), THEN and only then should we take away the mortgage deduction. This would depress housing for a greater length of time than without it, but at least the economy would be healthy enough to withstand the shock.
Believe me, I would NEVER have purchased a home without the home mortgage deduction. Never. In my particular case, it would not have made sense to eat that additional $5000 per year. I was a pretty happy renter and I would have remained a renter.
Here is an idea for you.
How about we eliminate the mortgage tax deduction AND eliminate property taxes on homes.
In the short term I would lose as my mortgage deduction is currently much higher than my property taxes.
As I pay off the home and as property taxes rise, I would get a long term benefit not having to pay property taxes.
The income stream would be something of a push with what we save on property taxes being made up by income taxes not deducted.
But at least our homes would be our own and there would be no way the government could take it since we would not own them an annual tax once we “own” our homes.
I would make that trade in a heartbeat. Drop the mortgage tax deduction but drop property taxes too.
Fair is fair.
How about lets get rid of the income tax first???
The Fifth Amendment is still in the Constitution.
Now, about the US government and its assets ~ not just its national accounts but its assets ~ there are assets that can be used to settle all debts.
Typical of so many Freepers you and others didn't follow Newt Gingrich ~ he had this little litany on oil shale in the intra-mountain West which is available for oil using current technology, and is owned by the US government. He placed its initial value as in the trillions of dollars.
No reason the Social Security debt cannot be redeemed with public assets.
People who want to simply write off the Social Security debt and the Social Security obligations think they've invented a new way of stealing which will not be defined that way ~ but sorry gang, theft is theft ~ there's a whole huge part of the law called "CONVERSION" and that's about every sort of theft there ever was or ever can be. So don't even think about it.
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