Skip to comments.Why the interest? Interest deduction gone by 2013?
Posted on 03/13/2011 9:11:14 AM PDT by Bean Counter
In effect since 1913 and long considered an untouchable provision of the tax code, the mortgage interest deduction as we know it may not be around to celebrate its 100th birthday.
The National Commission on Fiscal Responsibility and Reform is recommending that the mortgage interest deduction no longer be an itemized deduction; instead, it would be transformed into a non-refundable tax credit equivalent to 12 percent of interest paid on mortgages up to $500,000. What this would mean for taxpaying homeowners is up for debate.
According to the National Association of Realtors, progress has been made recently in bringing stability to the housing market, and any MID revisions now or in the future could seriously diminish home prices.
"Sixty-five percent of families who claim the mortgage interest deduction earn less than $100,000 per year, and 91 percent who claim the benefit earn less than $200,000 per year, says Ron Phipps, president of the National Association of Realtors.
"In addition, homeowners already pay 80 to 90 percent of U.S. federal income tax, and this share could rise to 95 percent if the mortgage interest deduction is eliminated," Phipps adds. "Any changes to it now or in the future could critically erode home prices and the value of homes by as much as 15 percent, destroying middle-class wealth accumulation and $2.5 trillion in home values nationwide."
John McGary, a CPA and partner with Marcum LLP, a New York-based accounting firm, says eliminating the MID would be devastating to the real estate industry, leading to more defaults and foreclosures and negatively impacting the nation's economic recovery. McGary says when homebuyers decide on the mortgage they can afford, they often factor in the savings from the tax deductions for mortgage interest and real estate taxes. If they lose the MID, many of these borrowers may not be able to afford their mortgages.
Consider that approximately 75 percent of the more than $85 billion that taxpayers saved via the MID in 2008 went to couples or individuals earning at least $100,000, based on data from the congressional Joint Commission on Taxation. It's numbers like this that draw criticism to the mortgage interest deduction as primarily benefiting wealthier versus low- and moderate-income homeowners The leaders of the deficit-reduction commission, however, indicate that only approximately 50 percent of all American homeowners benefit from the mortgage interest deduction.
Studies in recent years by researchers at the University of Wisconsin-Madison show that converting the MID into a credit would raise rates of homeownership by 3 percent and actually be a boon to Americans who currently don't benefit from the MID. Deduction opponents claim it artificially boosts housing prices, raises unemployment by increasing labor immobility, encourages overconsumption of bigger, costlier homes and discriminates against minorities.
I hope this takes Congressional action to implement, because if Premier Hussein can inflict this by Executive order or some other means, we are screwed to the wall.
The child credit needs to be eliminated before the mortgage interest deduction is touched.
Flat Tax. No IRS. Stop the insanity.
Yes but 95% of you got a tax break under Hussein’s fuzzy math, so quit yer bellyaching.
That’s why you shouldn’t buy more than you can afford, shop the best rate, get the shortest loan period, and pay it off asap.
EITC needs to be ended before the child credit is.
Flat tax is the only solution.
Huh? What tax break are you talking about?
This ought to open up several thousand more vacated homes for Section 8 “resettlement”.
They are socialists out of OPM and tying for every last drop of blood.
Absolutely, with a fluctuating tax, it is nothing but wealth distribution via tax rates at the whim of politicians.
What if the Flat Tax is 65%?
This will just be a huge kick in the ass to lower income home owners.
What?...you didnt notice that 8 bucks a week?
This is the fairest solution, but I would add the following conditions:
If you didn't pay any federal income tax last year, you don't get to vote in a federal election. If you didn't pay any state income taxes, you don't get to vote in state elections.
Obama considers it "spending."
God, please bring sanity back to this country before it is absolutely too late. Show me one righteous man.
This is clearly an attack on middle-class America by Washington Elites!
Agree. 17% across the board. EVERYBODY needs to have ‘skin in the game’.
it seems the way he was going was to say that the government would become the landlord for millions of Americans.
Hmm. Somebody is leveraged to the hilt I guess. I am all for this. Sick & tired of people overbuying homes while counting on the tax deduction for the interest to help them cash flow the house payment.
More democrats rent than Republicans... this plan takes money from the middle class and gives it to lower income democrats...( yes, there are new ‘programs’ for members of dem victim groups. How else to buy their votes?
The one Hussein was touting last year, where he jimmied the federal withholding tables to give everyone $400.00 more in their paychecks for the year. Which boils down to $8.00 / paycheck if you're paid weekly. Of course all it means is a smaller refund or in some cases you owe, but hey, Hussein calls that a tax cut.
You can count on the Libs extending the power of FanieMae, FreedieMac (or some form of the same) at the expense of the middle class taxpayers.
this would be a bigger kick to those of us whom have jumbos.....
Put a National Sales Tax and put it all towards the debt. Even poor folks who don’t pay taxes and middle class folks who have 100 kids would pay taxes.
So, currently, if a married couple, filing jointly, is making, say, $80,000 per year, they would be in the 25% tax bracket. If they pay mortgage interest of $10,000 per year, that would reduce their tax burden by .25 * 10,000 =$2,500.
Under the new proposal, they would only get a credit of .12 * 10,000 = $1,200.
In general terms, the tax increase would be (current tax bracket-12%)* amount paid in mortgage interest. For a couple making above $210,000, in the 33% bracket, paying $20,000 per year in mortgage interest, this is a tax increase of (.33-.12) * $20,000 = $4,200. This is clearly a soak the rich scheme, as it severely impacts those in the higher brackets who often have higher mortgage interest payments.
That's that muslim math that NASA's supposed to be proclaiming got us to the moon.
This is a good idea. In fact, eliminating ALL tax deductions is a good idea. You shouldn’t buy a home or donate to charity because it is a tax deduction.
The cost of housing would drop, and this would erode the value of my home, but it would also make it less expensive for my kids to get a home.
This would also put downward pressure on interest rates as people would be less inclined to buy at high rates absent the writeoff.
Of course, less deductions means less work for tax accountants and the IRS...I’m OK with that.
This is why I am a big supporter of the Steve Forbes flat income tax plan that:
1. Only has a 17% income tax on earned income.
2. Offers a generous initial deduction for the household (e.g., for a family of four, the deduction can be up to US$42,000).
3. Ends taxation of bank account interest, capital gains and stock dividend payments.
The result is for the vast majority of Americans, the income tax form will be simpler than the current IRS 1040 EZ form! Just the savings alone in tax compliance costs could be over US$200 billion per year--US$200 billion that can now be put to other more productive economic activity.
I have never been able to take advantage of the interest deduction. You need quite a few other deductions in order to itemize.
I guess we can start calling it “muzzy math” then.
Only if the income tax is eliminated
Once again I can’t understand why there are people who do not believe his goal is to destroy this nation.
Agreed. One of the complications I see is the corporate deductions. I don't have an expense account. I don't want to pay 17% on my gas and hotels for doing business. There would have to be some deductions, but I see the negotiations on those as a never ending quagmire in congress.
10% is good enough for GOD, so less than 10% for the flat tax.
Without the financial incentives to buy a home, you would have a much more mobile population that could quickly migrate from one state to another. To states like California, New York, and New Jersey, this would accelerate the ongoing exodus of taxpayers and corporations to a point that would collapse the states completely. While this sounds good, the government knows it couldn’t let it happen.
EITC has nothing to do with taxes. It is welfare, pure and simple.
Totally support this. Never made sense to me why we reward debt, which is at best a necessary ill.
BUMP to the flat tax.
You do realize there are many who don’t own real estate (including some here) whom view this as fair. It really is another variation of “Tax Those Evil Rich People”, only in this instance, the “Rich” are the middle class.
What they don’t realize is the incredible tax increase would further the growth of Government and crush out what little life is left in our economy, as Real Estate was a major part of the overall economy.
“There is none righteous, NO, not one” Romans 3
The left won’t be happy until every expressionless person live in a gray government housing projects, eat tasteless food, ride buses and train to their government jobs, and sit in the dark at night because they only have enough allocated power to watch the one government channel on the telescreen.
Not a single thing from the phoney commission has been draw up,voted on , or implemented so why is lefty peddling some bogus 2013 date ???
I don't see in this article any mention why there is 2013 in the headline ?
Does anyone seriously think a GOP congress would vote yes on this and expect to be reelected ? Maybe old DC Mitch McConnell and his fellow lobbyist owned senators would .
Have you lost your mind ?
Do you have any idea what such a law would do the US economy and everyone’s finaces ?