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.
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The government borrowed it and then took it out and spent it on prostitutes in Columbia (for one thing), and various other things ~ but it was a dedicated tax and the initial obligations remain ~ it must be spent on payments, or it must be refunded. You simply cannot write it off the books ~ or else!
How would you force banks to lend money to people at 3.5%?
SHouldn’t we let private lenders and private borrowers decide for themselves what the value is of the money they are lending and borrowing, without government interference?
IF we eliminated the mortgage interest deduction, the cost of houses would come down, and poorer people would be able to afford houses.
The mortgage interest deduction drives up the price of houses, and only helps rich people, because poor people can’t really get any benefit from the interest deduction (either as the article says they are doing standard deduction, or their marginal tax rate is only 15% anyway).
Rich people have large mortgages, and are in a high marginal bracket, so they benefit more. Because this is a targeted tax item, essentially government is paying rich people to help them buy houses.
But logic dictates that government subsidies don’t help the people receiving the subsidies, when targeted. People have an idea of what something is worth. They are willing to pay that much. Let’s say that, for a particular house, someone is willing to part with $300,000 of their own money. Or, looked at another way, they can afford $3000 per month for that house.
Now, government says they will throw in another $500 a month in mortgage interest deductions. (I’m making up all the numbers, so they don’t work out based on percentages or anything).
Will the people buy the same house, and pocket the $500? No, they will still be willing to pay $3000 a month, but now they can spend $3500 a month. And since they are competing for houses with others, the bid price on the houses will go up to that $3500. So all the government did was drive up the cost of the house.
But poor people don’t GET $500 a month from the government to buy a house, because they don’t pay income taxes. So even if they scraped together enough money to pay $3000 a month for the house, they couldn’t outbid the rich people who get the $500 government subsidy.
As conservatives, I believe we should push to eliminate all targeted tax deductions, in exchange for across-the-board tax rate reductions. We are so excited about cutting taxes that we support targeted deductions and credits, which really are just government spending used to force people to do what government wants them to do.
Like Obamacare — where the government could have avoided the unconstitutional mandate if they had just made it a tax credit — give everybody $5000 a year if they buy insurance; it’s like a $5000 fine for NOT buying insurance. That’s what happens when you let government give out targeted credits, like for higher education, or electric cars, or mortgage interest.
Income tax rates are already set to explode next year, as well as taxes on capital gains and dividends. My family's taxes are due to go up by over $4,000, and no, Congress will not do a damned thing about it. Eliminating mortgage deductibility would cost us another $1,500+. At that point, I'll consider another country with lower tax rates, of which there will soon be many.
What I think is a good thing is getting the government out of the business of deciding what people should buy with their own money.
If you think that was real, you deserve to upside-down.
You just want to go back to the stupidity, as long as you make some money on it.
But not to worry. The hyperinflation you want so badly is just around the corner.
Sure, it would pave the way for govt ownership of all property.
Both taxing or not taxing something are a means of control.
It should be clear that when 50% pay no federal income taxes it is almost impossible to stop higher taxes.
There will never be smaller government as long as there is a huge constituency which believes tax policy is used and should be used to punish those with more than it.
Your thinking on this is missing a critical element.
Rents go up on the poor and everybody else.
Until Obama showed up you could rent an apartment in Fairfax County ~ 2 bedroom 2 bath lr kit ~ for about $2,000 a month ~ give or take a few bucks. Now you can rent an apartment of comparable features for $3,700 a month.
At the same time we have a large overhang of unsold empty houses.
The people paying rent can pay rent but they can't qualify for those homes because ~ you guessed it ~ they went bankrupt! Banks won't loan to them. Not only that, the banks ~ even in the DC area ~ find it difficult to find funds to loan. Even banks accepting foreign deposits on 0% interest, and charging the depositors for the favor, don't have money to loan. That's all short term stuff. Home loans are long term.
We force banks to lend money at 3.5% the old fashioned way ~ put a cap on interest and infate M1
Apparently you are completely stupid on multiple subjects.
The government "borrowed" the money from itself and has spent the money. It is gone. Whatever the hand-waving involved, the money is gone.
Future Social Security and Medicare benefits will be paid with money taken from future private sector workers and investors.
Period.
This is reality. All the rest is just bluster.
If you think there is some moral debt that future workers owe to those who came before them and ran up a $16T national debt, I'd love to hear you explain in straightforward term why that is.
Read the posts on the thread ~ federal personal income taxes can be abolished and all income treated as capital gains. That way you’d have the rich on your side regarding what was a satisfactory deduction.
It's a big fat failure. Abolish it and move on.
Eliminating the mortgage deduction would drive home prices further down, increase forclusures, and make more people abandon their homes through short sales or “walking away”. Here in the Sacramento area there ae whole zip codes with more the 70% of homeowners underwater. They stay despite owing up to twice what their homes are worth because they can afford it, and they like living there. Take awy the deduction a lot of tem will either choose to leave, or won’t be able to afford the payments anymore and just stop paying at all until they are forclosed.
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.
Without completely overhauling the current tax code, this idea is simply stupid.
They used the vehicle of a public bond to cover their tracks. At the same time when they take a dollar and send it to someone receiving Social Security they retire that dollar from the pool of bonds that constitute the debt TO Social Security.
There's a $6 trillion overhang of funds collected but not spent on Social Security.
The fifth amendment says ~ bwahahahaha ~ "nor shall private property be taken for public use, without just compensation". Get over that hurdle and we'll talk. In the meantime I think I'll review the two or three cases undergirding the federales prerogatives regarding social security ~
Huuuuuuuge errors. First the author presumes that the mortgage is the first dollar of the deductions. The true first dollars would be state and city income taxes and property tax (presuming that you are buying a house). Those taxes get me over the "single" standard deduction before I even get to charitable contributions or mortgage interest deductions. The income taxes are not optional - they must be paid and the amount can't be changed unless I decide to stop working. The property tax could be reduced or eliminated by moving to a smaller house or an apartment, but since I choose not to move it won't be changed either. The mortgage deduction comes after those, not before.
Second flaw - the author is trying to base long term tax policy on a short term fluke in interest rates. The 3.8% mortgage won't be around forever. However the elimination of the tax deduction would be permanent.
Personally I would prefer a tax code that has no deductions and a much lower flat rate (or else a national sales tax instead of an income tax). No hoops to jump through, no tricks to perform for the government to give you a dog biscuit. You want to live in a high tax state? Well the feds aren't going to help your state government by giving you some money back. You want to live in a big house? Good for you, but it shouldn't be of any interest to the government when tax day comes. Most of those who are looking to eliminate the mortgage deduction aren't looking to do that. Instead they are merely looking to whip up class envy (note the quick reference to a $300k+ mortgage) and shake down the middle and upper class for more taxes.
No one in this country should have a zero federal income tax liability. It is the epitome of progressive (leftist) doctrine to have 53% of the population supporting the remaining 47% many of whom get my money given to them in the form of earned income tax credits. I am tired of carrying freeloaders.
Everyone benefits from the military which is one of the few constitutionally mandated federal government services.
Flat federal tax rate across the board. The same goes with state income taxes. I already pay the highest property taxes in the country, sales taxes on practically everything I purchase, and a myriad of other surcharges, fees and hidden state and local taxes.
The current system is confiscation of private property from the bourgeoisie and nothing else.
Then how about a rent expense deduction for a primary residence.
Without that deduction you push income interest further down and banks out of the primary home lending business.
“You just want to go back to the stupidity, as long as you make some money on it. “
So you want to use the govt to suppress the free market.
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