The Mortgage Interest Deduction And The U.S. Housing Market
http://thedianerehmshow.org/shows/2012-12-10/mortgage-interest-deduction-and-us-housing-market
President Barack Obama seems to be, so far, holding firm on his campaign pledge to raise tax rates for those with taxable income above $250,000, but he has also not ruled out reducing or eliminating longstanding tax breaks including the mortgage interest deduction. It’s been in effect for almost a century, and now costs about $100 billion a year in lost tax revenues. For many upper income tax payers, its benefit is clear, and it’s also believed to encourage home ownership. Please join us to discuss who the mortgage interest deduction helps, who it hurts and what would change if the rules were modified.
Guests
Seth Hanlon
director of fiscal reform at the Center for American Progress.
Lawrence Yun
chief economist of the National Association of Realtors.
Eric Toder
fellow at the Urban Institute and co-director of the Urban-Brookings Tax Policy Center.
Ed Pinto
resident fellow at the American Enterprise Institute and former executive vice president and chief credit officer for Fannie Mae.
Comments
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"mortgage interest deduction"? I thought it official that deductions are now called "loop holes"
Private home ownership as we know it can't last.
The average savings for retirement is 30k, confiscatory property taxes, an over reliance on unsustainable federal retirement programs like social security and medicare. The writing is on the wall, we are going to have to establish orphanage style living arrangements for the retired. Medicare probably will not exist for too long anyway, so plan on it being rolled into the coming two tier health care system, private insurance for the wealthy and rationed government care for everyone else . People have spent all their money on instant gratification, the moral hazard of government dependency. Generations with little or no work ethic only dependency oriented. I expect to see this in my life time, probably within twenty years.
Mortgage rates are the one that can fluctuate the cost of house. Generally people are more concerned for the mortgages rather than the property prices.
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Please - does it have to be so hard: Cap the mortgage interest deduction.
(Do the same for so-called charity as well. It "ain't" charity if taxpayers want a quid pro quo for their "donation."
it's not a matter of quid pro quo, at least not for me. Less taxes (including on the "rich") allows for more giving.
Diane, could you address the fact that when people talk about their tax "savings" from the mortgage interest deduction they do not deduct the standard deduction from the calculation? If people looked at what they saved in excess of the standard deduction only, I don't think they would be so reluctant to see changes in the law.
Most Americans live in modest homes. The amount the pay in interest is usually not more than the standard deduction for more than a few years, if at all. This deduction is a "gift" to mostly wealthy people at the expense of those of us who do not have huge mortgages. It is also a gift to the banks and the real estate industry because they have convinced Americans that giving the banks 100 cents, so that the government will give them 10, 15 or 25 cents makes mathematical sense.
So much better to lower housing values and tax middle and lower income people more -that will remove money from the economy, less money to purchase goods and services from neighbors-, than to tax Paris Hilton an extra 2% on her investment income. After all, she is a "Maker" while all of those lazy middle class workers are "takers".
Good thing no private insurer has ever rationed care or denied care to a customer.
"We believe there's a better way to control costs by controlling utilization and getting people involved in their health care."- Cheryl Tidwell, Humana's director of commercial sales training.
"After all, she is a "Maker" while all of those lazy middle class workers are "takers"
Ironically that is probably true, her life style does create jobs.
"More than half of the US population – 165 million of 308 million Americans – is now dependent on the state in some form. Of these, 107 million Americans rely on government welfare, 46 million seniors collect Medicare and there are 22 million government employees"
The mortgage interest deduction hurts me and my less affluent renter friends. Phasing it out will be so good for the US balance sheet and the country, tho specific interests will scream. I have never owned a home, but pay a high rent. Why should I have been disadvantaged for so long? Why are my poorer friends, who rent, not permitted a deduction?
I have read that in Canada home ownership is as high as here, with no such distortion of the market.
I have bought a couple of houses in my life (due to job changes) and getting a deduction on my taxes was never a major motivator for me. I bought the houses for other reasons and the Mortgage Interest Deduction was icing on the cake and if it wasn't there it would not have affected my decision in any way.
Timely discussion, thanks Diane and guests. Would it be possible to discuss the degree to which USA's relatively high home ownership rate compared to Europe and elsewhere puts us at a competitive disadvantage in the age of workforce globalization? E.g. lower labor force mobility, reduced willingness to migrate overseas for work, more family capital tied up in homes etc?
Merry Christmas and De oppresso liber!
THX1138 wrote:
"More than half of the US population – 165 million of 308 million Americans – is now dependent on the state in some form."
Wrong, 100% of the US population is dependent of the state in some form, things like roads, defense, schools, corporate welfare, regulations, etc.
This is simple. There are two prinicples at work within government.
When you tax something, you get less of it.
When you offer a tax deduction for something, you get more of it.
BOTH distort free markets. Now some tax is necessary, but as income taxes are grossly regressive, consumption taxes make much more sense and give consumers much more choice. You don't have a choice of whether to work or not (unless you are content to live off the government tit). You do have a choice of what, or what not to buy.
You can exempt food and medecine.
But what do I know? I'm just a partisan idealogue.
Here in Canada, mortgage interest is not tax deductible. Many of the largest cities in Canada have an higher average home price than in the USA, even the prices before your housing crisis.
The drop in home price if you cancel the mortgage interest would be only temporary. House price is based on demand and supply.
Middle class people use the interest deduction to build equity for our old age. This is not a loophole.
Mike Sergeant wrote: "Wrong, 100% of the US population is dependent of the state in some form, things like roads, defense, schools, corporate welfare, regulations, etc"
Wrong!? those that pay for it cannot be described as dependant, at least when it comes to the federal government. People in the private sector not the government paid for all that stuff anyway.
You CANNOT compare the US housing market to "England's" (where I lived for 10 years and owned a home). First off, England's housing market is skewed by home prices in London, where demand is virtually unlimited due to the influx of EU and other nationalities flocking to the market to earn British pounds, one of the highest valued currencies in the world. The US is not England. Second, in "England" you do not have to pay annual property taxes as you do in the US. In London, we paid a one-time property tax when we bought our property (3% of the value of the home). And that was it. IN the US, we pay $13,000 EVERY YEAR!
Eliminating the mortgage interest deduction will devastate the US housing market - another swipe against an already crippled middle class.
ecgberht wrote: (snip) "When you tax something, you get less of it. (snip) Now some tax is necessary, but as income taxes are grossly regressive, consumption taxes make much more sense and give consumers much more choice."
Exactly, thank you Sir. Yes income taxes discourage exactly what we need in this nation, more hard work by everyone. Plus consumption taxes catch the criminal class and underground economy operators -- drug dealers, pimps, petty crooks and assorted white collar criminals. Collection is easy; you pay the tax when you buy the Cadillac, BMW etc.
Perhaps Diane will have a discussion sometime on the positive aspects of a national VAT and a reduced reliance on income taxes, with all the attendent administrative costs and enforcement issues.
I have been a renter and a home owner and the costs for owning a home are significantly higher as a homeowner. I have to pay to maintain my home, fix what is broken, etc. There are no costs that can be passed on to someone else. Not to mention, my home insurance is higher. Home insurance has to cover possible replacement to the entire house, land, and any damage to individuals who are on my property. Renter's insurance only has to cover personal contents. I recently had a flood to my home and it cost about $50,000 in damage but I can't just move out. I am responsible for fixing what was damaged. These are just issues that renters don't have to face. Also, when home ownership is high in a neighborhood, the tax base is higher (because we also pay property taxes in most states) which allows for better funded services (fire, police, transportation, schools), because people have a vested interest in the neighborhood. If renters have to face all of those costs then by all means, they should get tax deductions too. Having been on both sides, it is cheaper to rent in most markets than it is to own.
Don't banks pay income taxes on the interest they receive from homeowners?
I think it's a good policy choice to tax the homeowners' income one time, when the banks receive it, by shifting that income tax to the banks.
Promoting home ownership is good for the country and families.
We are so deeply invested in this arrangment. Changing it would be extremely burdensome to so many people.
Considering all the deductions, credits, shelters and other ways that the rich have to decrease their taxable income, it is a shame that the government would consider reducing one of the only deductions left for the middle class.
When will the Alternative Minimum Tax be addressed?
The greatest benefit to home owners would be provided by making mortgages more like simple interest loans, rather than the strange way banks are allowed to force interest payment up front. I have never understood why these loans are so profitable for the lender and disadvantageous for the consumer. Couldn't rules or government guarantees make these loans more normal, and then the interest deduction would become unnecessary.
I am in awe of the resolve of T-Party/Republicans to destroy the middle class........ WOW !!!!
Tax deductions when taken advantage by the middle class are now "loop holes."
Any move to further limit middle class tax deductions - mortgage interest, state and local taxes and charity have to be linked to eliminating the favorable tax rates for carried interest and dividends. Likewise the limits on FICA end point need to be increased significantly.
There has been a very serious encroachment on tax rates of the middle class. Medical costs, employee expenses and property losses are no longer deductible. Remember deductions for state sales taxes paid. Many of the eliminated tax deductions fit the definition of double taxation used to justify the carried interest and dividends tax loopholes.
America's periods of greatest growth coincided with onerously high tax rates for the highest incomes.
Talk about deceptive advertising! The AMT was also meant to catch folks with too many deductions and that ended up biting middle-class families after the Republican wrecking crew screwed up the indexing factors. This plan to chop deductions, including mortgage deductions, will ultimately end up biting us as well. Whenever the conservatives call for limiting waste, they usually mean 'cut middle-class support'. You can tell what the correct stance for the middle-class is by doing the opposite of what the American Enterprise Institute thinks is the right way. Check your history folks.
Follow the money. Hedge funds, for instance, are buying up houses and renting them at higher and higher rents. Could hedge funds be PART of the push behind this change that could drop prices and increase rents and the number of renters?
Yes, the loss of the deduction will hit those who have already purchased real estate.
However - those who have acquired homes over the past three decades under prosperous conditions created by the incurrence of national debt, will now bear the cost of paying such debt.
More fair them than young folks coming up and wanting their own homes.
There is no doubt that the deduction is bad tax policy. I would recommend limiting it to (a) primary residences, (b) the interest deduction should be limited to an amount of debt not in excess of the maximum conventional mortgage amount, and (c) the amount deducted should be reduced by 5% per annum until the deduction is gone.
I want to address Ed Pinto's comment that the tax deduction is comparable to the standard deduction. This is dependent on markets and I think that distinction should be made. If a person lives in Kansas, perhaps. Where I live (Northern Virginia), it costs $300,000 on the low end to afford a house. The expense of a particular market must be taken into account before people start talking about "averages". I have a mortgage on a small old townhouse of $345000. I am not rich; I am a single parent but I am hard pressed to find something cheaper. It costs approximately $1900 to rent in my area and my mortgage is $2100. I desperately need the deduction to make this home affordable especially when taking into account all of the other expenses in owning a home.
The home mortgage interest deduction has caused the average size of new homes to drastically increase. This is a huge energy suck for many years into the future. It should not apply to large homes at all. People who buy large homes should get zero interest deduction.