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Subject: Get rid of the mortgage interest tax deduction
Posted by: biliruben
- [59551120] Fri, May 10, 2013, 08:45
Floyd Norris reports that Economists have shown home ownership stifles employment opportunities.
If the correlation is real, what could be the cause? The professors say they believe that high homeownership in an area leads to people staying put and commuting farther and farther to jobs, creating cost and congestion for companies and other workers. They speculate that the role of zoning may be important, as communities dominated by homeowners resort to “not in my backyard” efforts that block new businesses that could create jobs.
So it stifles innovation, is incredibly inequitable, as renters and new home-owners benefit from it little, if at all, and it encourages conspicuous consumption and sprawl, encouraging people to buy larger homes, and second homes in what was previously farm land or wilderness that largely sit empty.
Further it puts a $70 Billion hole in our budget deficit every year.
It also artificially inflates housing prices.
Less government. Pay down national debt. Get rid of the MITD now!!! |
| 1 | Frick
ID: 432501512
Fri, May 10, 2013, 13:47
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Now would be the ideal time to do it, if it was ever going to be done. With the historically low interest rates on mortgages, the credit is going to be at an all-time low over the next decade or so. Once mortgage rates start to go back up, it is going to be hard to knock off a 5 figure tax deduction for middle class incomes.
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| 2 | biliruben
ID: 59551120
Sat, May 11, 2013, 11:46
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It isn't really a 5 figure tax deduction for most ordinary folks. Maybe for upper, upper middle class.
You need to look at the difference between the standard deduction, which is $12,200 for a couple, and what you are deducting when you itemize. Even if you are paying $10,000 interest annually, you are getting less than $1000 benefit, unless you have alot of medical expenses or high state and local taxes.
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| 3 | Perm Dude
ID: 201027169
Sat, May 11, 2013, 12:40
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There was some good discussions of it in this thread.
This is the perfect time to get rid of the MITD. If only we didn't have crazy people running the House of Representatives, who only listen to a guy who believes that closing loopholes is the exact same thing as a tax increase and whoa--we can't have that now, can we?
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| 4 | Guru
ID: 330592710
Sat, May 11, 2013, 12:54
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The MITD isn't a loophole - it's an intentional part of the tax code. And eliminating it would be a tax increase.
The last sentence of PD's post may be correct in general, but I don't see how it's applicable in this case.
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| 5 | Perm Dude
ID: 201027169
Sat, May 11, 2013, 13:27
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Loopholes are also part of the tax code. Maybe you are making a distinction between intentional or non-intentional tax avoidance strategies?
This isn't a tax increase (at least, in this case, this certainly isn't a tax liability increase). The amount of taxes owed is exactly the same, but with the MITD the government agrees to take less in what they are otherwise owed to subsidize the interest costs in certain loans.
Like the Helium Reserve, there's no evidence that this actually does what is says it will do (that is, to increase home ownership levels). The effect has been to cause the government to borrow more money than it otherwise would have.
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| 6 | bibA
ID: 54522612
Sat, May 11, 2013, 16:40
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PD - I am now claiming approximately $15,000 in mortgage interest. If the deduction were done away with, would I end up paying more in taxes? Less? Or the same?
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| 7 | biliruben
ID: 21841115
Sat, May 11, 2013, 18:10
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It's definitely a deduction. Just a poorly targeted one.
Folks like me who also pay around $15K, shouldn't be given a grand or two back every apple, when the dude renting the house next door gets nothing but some dude in a top-hat flipping him the finger.
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| 8 | biliruben
ID: 21841115
Sat, May 11, 2013, 18:10
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apple=april, in case you didn't know.
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| 9 | bibA
ID: 54522612
Sat, May 11, 2013, 18:35
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Gotta admit - paying more taxes is pretty similar to a tax increase.
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| 10 | Perm Dude
ID: 201027169
Sat, May 11, 2013, 21:44
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You've got to pay it anyway. The difference is that the government right now is letting you re-direct some of the taxes you owe to your own bank.
And, because we're in a deficit, the government is borrowing the money it doesn't take in, paying interest themselves, which will, one day, have to be paid back.
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| 11 | Frick
ID: 157331422
Sat, May 11, 2013, 23:16
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If a person is renting a home, the owner of the home most likely can't claim the mortgage interest deduction on it, unless they are living their for 14 nights out of the year. The interest is probably a business expense if they have the rentals set up as a business however.
The idea behind home ownership helping the economy is that people who own homes are much more likely to spend money on improving their home. Those improvements help drive the economy and provide jobs. The home mortgage interest deduction is a similar philosophy economically to the stimulus package the Obama promoted and got passed.
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| 12 | bibA
ID: 54522612
Sat, May 11, 2013, 23:54
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The difference is that the government right now is letting you re-direct some of the taxes you owe to your own bank.
I assume you mean in the form of interest?
If I were unable to claim the deduction, I would still be paying the bank the same interest, wouldn't I?
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| 13 | biliruben
ID: 41431323
Sun, May 12, 2013, 07:42
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If that's true, frick, we should simply provide a tax deduction (or a bigger one, as I recall there are already some things you can deduct), for home improvement.
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| 14 | Perm Dude
ID: 201027169
Sun, May 12, 2013, 11:07
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#11: There is no difference in ownership rates between countries with the MITD and those without. The UK got rid of it a few years ago and found no difference in ownership rates.
#12: Yes, you'd be paying the same interest.
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| 15 | Frick
ID: 157331422
Sun, May 12, 2013, 11:08
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I'm not a CPA, so I could be wildly wrong, but I believe that most of the home improvement tax credit are related to improvements that reduce energy consumption. I have no problem with those credits, it is a great example of the government being able to steer people'c choices.
Just making it any home improvement doesn't seem to make any difference. Renters still are not going to take advantage of the credit and it would benefit the wealthy more than the middle class. Who is more likely to make improvements to their home?
If we want to change the "American Dream" to not be home ownership, that is an interesting discussion on a number of fronts. And getting rid of mortgage tax exemption would be a great first step. Should a home be looked at as an investment? I would argue that it shouldn't be. Home ownership is an expense and becomes a liability that limits your flexibility when situations change. But, it can also provide financial stability in the future if you don't have changes in your life.
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| 16 | Perm Dude
ID: 201027169
Sun, May 12, 2013, 11:14
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Should a home be looked at as an investment?
One of the driving forces behind the housing bubble is that houses were considered, by many, to be merely another financial instrument. That, combined with the myth of home ownership being the "American Dream" locked people into mortgages they couldn't afford and in homes they shouldn't have purchased in the first place.
I'm not saying that buying a home is for nobody, of that stability isn't a good thing (and ask any urban planner whether a high home ownership percentage is a goal for a community--it certainly is!). But we got into trouble going the other way too much, IMO. And literally are paying for it.
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| 17 | biliruben
ID: 59551120
Sun, May 12, 2013, 11:32
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Cool Calculator
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| 18 | Perm Dude
ID: 201027169
Sun, May 12, 2013, 11:49
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*or* that stability...
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| 19 | Frick
ID: 157331422
Sun, May 12, 2013, 11:59
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I agree that we are paying for it, but are we paying for high ownership rates or unsrupulous mortgage originators and fianciers repacking the loans into misidentified commodities? I think this is a case of attempting to throw the baby out with the bath water.
But, as I said before, if we are going to get rid of it, the next few years would be the ideal time. I know we just refinanced our house and the drop in mortgage interest is going to make the standard deduction a better option.
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| 20 | biliruben
ID: 21841115
Sat, May 25, 2013, 08:53
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Cool maps of the distribution of the deduction.
Geographic distribution of mortgage interest deduction.
If you click on the average deduction per filer by zip code, it makes it painfully clear that it's a massive sprawl inducer, subsiding and incentivizing far-flung suburbs and exurbs, with a giant donut hole where cities are.
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