Mortgage Interest Deduction on the Slicing Block

[runeight]

Just gets better huh?

r8

In order to pay for health care reform, President Barack Obama is proposing to take the axe--or at least the scalpel--to a longtime sacred cow: the mortgage interest deduction.

The proposal sets off what is sure to be a heated battle with housing-related industries. The National Association of Home Builders, for example, has already released a statement attacking the plan:

“With the housing market still reeling from its worst downturn since the Great Depression, this is not the time to talk about raising taxes on home buyers and home owners," Joe Robson, chairman of the National Association of Home Builders, said in a press release. "This proposal will increase the cost of housing for many middle-class families, particularly in high-cost areas such as California and the Northeast, which will only further undercut the housing market, exert more downward pressure on home values and work against the President’s efforts to stabilize housing and turn this economy around."

Mortgage Interest Deduction on the Slicing Block - The Home Front (usnews.com)

Obama plans mortgage-deduction cut - Lansner on Real Estate - OCRegister.com

[twotonevert]

Thats all I have left! Crap!

[dadofthree]

I'm not affected by this, but I don't understand. They just gave an $8K benefit for buying a house this year.

[runeight]

Originally Posted by dadofthree

I'm not affected by this, but I don't understand. They just gave an $8K benefit for buying a house this year.

Liberalism. A better way to do things.

r8

[runeight]

Originally Posted by twotonevert

Thats all I have left! Crap!

When it gets to nothing the Liberals will be happy. You see, they don't take their money.

They take yours.

Why, here is motor mouth Joe right here. "Everybody's a good guy".

YouTube - Joe Biden: Wealthy Paying Higher Taxes Patriotic Thing To Do

r8

[Dino]

Killing (or Maiming) a Sacred Cow: Home Mortgage Deductions
By Edward L. Glaeser
Edward L. Glaeser is an economics professor at Harvard.

The Great Depression provided an opportunity to rethink old policies in a major way. In the current morass, everything should, once again, be open for debate. One sacred cow that has long been in need of a good stockyard is the home mortgage interest deduction. So, in the spirit of libertarian progressivism, I suggest gradually reducing the upper limit on the deduction to loans of up to $300,000, and then refunding the tax revenues in a more productive manner.

The tax code allows homeowners to deduct the interest on loans used to buy, build or improve a home, for mortgage principals up to $1,000,000. (For mortgages used for other things – say, to finance the purchase of a car, or pay for college tuition – homeowners can deduct the interest they pay on loans of up to $100,000.)

A wide range of economists have long found fault with the deduction. Here are a few of the reasons:

Problem #1: Subsidizing interest payments encourages people to leverage themselves to the hilt to bet on housing markets. The size of the tax benefit is proportional to your debt. The deduction essentially encourages us to make leveraged bets on the swings of the housing market. That leverage means that housing price swings can easily wipe people out. We are currently experiencing the consequences of subsidizing gambles on housing.

Problem #2: The deduction pushes up prices in places where the supply of new homes is constrained, as it is in many coastal markets. Economics 101 teaches us that if we subsidize demand where supply is inelastic then the only effect is to make prices go up. Housing supply is pretty constrained in places like New York City because of land-use restrictions and lack of land. In these places, the deduction doesn’t make housing more affordable. It just transfers money from buyers to sellers, and that makes little sense.

Problem #3: The deduction is wildly regressive. The tax savings for households earning more than $250,000 is 10 times the tax savings for households earning between $40,000 and $75,000 a year, according to recent research by James Poterba and Todd Sinai.

If there ever was a case for small-government egalitarianism, then this is it. Eliminating the home mortgage deduction and replacing it with an across-the-board tax cut would equalize after-tax incomes without a single new government program.

Problem #4: The deduction encourages people to buy larger, single-family detached homes, and that increases carbon emissions and pushes people out of cities. The deduction encourages people to buy more expensive homes, which are generally bigger homes.

Bigger homes use more energy. The deduction is therefore implicitly urging Americans to run higher electricity bills and spend more on home heating. If global warming is a serious problem, then the government should be encouraging us to live in smaller, not bigger, dwellings.

Problem #5: The home mortgage interest deduction is poorly designed to encourage homeownership, which is, after all, the alleged desideratum. Much of the interest deduction’s benefits go to richer Americans who are likely to own homes in any case.

Poorer people who are on the margin of buying and renting often don’t even itemize. My own research in this area found that when the value of the interest deduction rose, during periods of high inflation, there was no observable increase in the homeownership rate.

If the goal of the deduction is just to increase homeownership, then it would make far more sense just to give a flat tax credit to people who buy homes. If the credit was independent of home value, then this would eliminate the incentive to buy bigger homes. If the credit was independent of borrowing, then this would decrease the incentive to over-borrow.

Now, I do understand that drastically reducing the cap on the mortgage interest rate now, in the midst of a housing crash, would be kicking the markets when they are down. Yet this crisis provides us with an opportunity to act that will be lost if we wait until housing prices rise again.

So here is my utterly quixotic proposal. Enact legislation now that will gradually decrease the cap on the mortgage principal for which homeowners can deduct interest payments by $100,000 a year over the next seven years until it hits $300,000.

The effect during the next two years should be sufficiently small that it will be unnoticeable in the current environment. Ending the madness of encouraging Americans to bet everything on housing, we can hopefully reduce the odds of a tragic repeat of the current boom-bust cycle.

[runeight]

This is never mentioned but in fact makes the playing field even.

If the goal of the deduction is just to increase homeownership, then it would make far more sense just to give a flat tax credit to people who buy homes. If the credit was independent of home value, then this would eliminate the incentive to buy bigger homes. If the credit was independent of borrowing, then this would decrease the incentive to over-borrow.

Problem #4: The deduction encourages people to buy larger, single-family detached homes, and that increases carbon emissions and pushes people out of cities. The deduction encourages people to buy more expensive homes, which are generally bigger homes.

Al Gore train of thought.

Bigger homes use more energy. The deduction is therefore implicitly urging Americans to run higher electricity bills and spend more on home heating. If global warming is a serious problem, then the government should be encouraging us to live in smaller, not bigger, dwellings.

This guy is a pinhead.

r8

[runeight]

I'll look for this bozo on MSLSD with Keith Olbermann.

r8

Edward L. Glaeser is an economics professor at Harvard.

[Dino]

Originally Posted by runeight

This is never mentioned but in fact makes the playing field even.

If the goal of the deduction is just to increase homeownership, then it would make far more sense just to give a flat tax credit to people who buy homes. If the credit was independent of home value, then this would eliminate the incentive to buy bigger homes. If the credit was independent of borrowing, then this would decrease the incentive to over-borrow.

Problem #4: The deduction encourages people to buy larger, single-family detached homes, and that increases carbon emissions and pushes people out of cities. The deduction encourages people to buy more expensive homes, which are generally bigger homes.

Al Gore train of thought.

Bigger homes use more energy. The deduction is therefore implicitly urging Americans to run higher electricity bills and spend more on home heating. If global warming is a serious problem, then the government should be encouraging us to live in smaller, not bigger, dwellings.

This guy is a pinhead.

r8

Why did I know you would latch on to this? But why is he a "pinhead" for pointing out: If global warming is a serious problem, then the government should be encouraging us to live in smaller, not bigger, dwellings

Originally Posted by runeight

I'll look for this bozo on MSLSD with Keith Olbermann.

r8

Edward L. Glaeser is an economics professor at Harvard.

I take it you are a Yale man?

[winlite]

Obama also wants to decrease the deduction for charitable giving. This in effect will decrease giving to churches, hospitals, and many other good causes. But then again the government knows much better how to spend our money than we do.

[BusaWhipped]

The purpose of home mortage tax break to encourage individuals to purchase homes. A country with a higher percentage of home owners is a more stable county. This is why the home mortgage intrest deduction has been held sacred. You can try to justify this anyway you want, but the actions over the past 2 months are all focused toward big brother government. If you think the goverment can take care of you better than you can take care of yourself, guess again.

[runeight]

Originally Posted by winlite

Obama also wants to decrease the deduction for charitable giving. This in effect will decrease giving to churches, hospitals, and many other good causes.

You caught that also I see.

r8

[runeight]

Originally Posted by BusaWhipped

The purpose of home mortage tax break to encourage individuals to purchase homes. A country with a higher percentage of home owners is a more stable county. This is why the home mortgage intrest deduction has been held sacred. You can try to justify this anyway you want, but the actions over the past 2 months are all focused toward big brother government. If you think the goverment can take care of you better than you can take care of yourself, guess again.

Where is my gas for the car? And where is my monthly mortgage payment?

YouTube - Obama supporter thinks Obama will pay her mortgage and put gas in her car

r8

[Dino]

Originally Posted by winlite

Obama also wants to decrease the deduction for charitable giving. This in effect will decrease giving to churches, hospitals, and many other good causes. But then again the government knows much better how to spend our money than we do.

If the only reason you give to charities is to get a tax deduction you have a lot more to worry about.

[runeight]

Originally Posted by SilverSurfer

If the only reason you give to charities is to get a tax deduction you have a lot more to worry about.

It's not the "token" amounts you or I give. It's the millions that are given.

r8

[Mr Bogus]

There is no sacred tax deduction to any true liberal, there is only money that needs re appropriated..

Problem #1: Subsidizing interest payments encourages people to leverage themselves to the hilt to bet on housing markets

anyone that believes or even remote thinks this is true is way the hell out there.. just how big do you think the deduction is? it is about the same percentage as the "tax" credit deduction Obobo is proposing for a new car.. ( about $112 per $1000 paid out) The numbers are ridiculously small but to a family just making ends meet, the maybe $1000 or so a year saving is not going to make them go in debt up to the hilt...

The loss of this deduction is just another incursion into the wallet of the "little guys"

BTW.. if you confiscate every dollar over $500K earned by people in this country, it would only equal about $500B (that is EVERY dollar over 500K and it is generated by about 1% of the population.. so sure come take my meager few hundred a year I get back for owning a house and now making house payments for people that too 110% mortgages on over valued homes... "Good night to the US Monetary system")

[Dino]

Originally Posted by Mr Bogus

There is no sacred tax deduction to any true liberal, there is only money that needs re appropriated.. anyone that believes or even remote thinks this is true is way the hell out there.. just how big do you think the deduction is? it is about the same percentage as the "tax" credit deduction Obobo is proposing for a new car.. ( about $112 per $1000 paid out) The numbers are ridiculously small but to a family just making ends meet, the maybe $1000 or so a year saving is not going to make them go in debt up to the hilt...

The loss of this deduction is just another incursion into the wallet of the "little guys"

BTW.. if you confiscate every dollar over $500K earned by people in this country, it would only equal about $500B (that is EVERY dollar over 500K and it is generated by about 1% of the population.. so sure come take my meager few hundred a year I get back for owning a house and now making house payments for people that too 110% mortgages on over valued homes... "Good night to the US Monetary system")

Who are you quoting?

[Mr Bogus]

Originally Posted by SilverSurfer

Who are you quoting?

why would this have to be someones "quote"? buy a house, do the taxes, do your 1040.. it is all right there.. heck I calculated my refund if 100% of my house payment was interest.. it was laughable... yet they want that money too... also tax numbers are easily found on the net for income averages across the US demographic..

[Dino]

Originally Posted by Mr Bogus

why would this have to be someones "quote"? buy a house, do the taxes, do your 1040.. it is all right there.. heck I calculated my refund if 100% of my house payment was interest.. it was laughable... yet they want that money too... also tax numbers are easily found on the net for income averages across the US demographic..

if you confiscate every dollar over $500K earned by people in this country, it would only equal about $500B (that is EVERY dollar over 500K and it is generated by about 1% of the population.. so sure come take my meager few hundred a year I get back for owning a house and now making house payments for people that too 110% mortgages on over valued homes... "Good night to the US Monetary system")

This part.

[Mr Bogus]

US Census Press Releases

There are also referenced PDF's with additional links and information that allow you to put the numbers together... I have spent a lot of hours reading and the facts are often quite opposite of what is said during the political speeches..

I have spent a few moments studying class demographic for a lack of better word, dysfunctional life style issues.. (drugs, pregnancy, crime, income, housing).. none of which is fixable with just money.. until people assume responsibility for their own well being, money only delays the inevitable.. look at the automakers after all this money that has gone in... as predicted, where they at today already? Did you hear the predictions put forth by GM yesterday? and again, more invisible money will be thrown at bad..


(you have to do some math to get your numbers btw.. .GNP/percentages earned in each income class/etc..)