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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I've lived for many years in countries without these tax incentives. For example. in Canada there is no write off of interest, and capital gains on secondary residences are mainly taxable. Yet the buying pressure on personal real estate is and has been intense. Over the past 5 years while US property prices were plummeting, Canadian house prices continued to rapidly increase, interest deductions notwithstanding.
The introduction of a change in interest rate deductibility, however, would have to be managed sensitively so as to minimize the impact on the housing market.
Change in such a bedrock policy requires reference to a clear principle. The core principle behind the mortgage interest deduction is to encourage home ownership and all of ancillary private and public virtues that are presumed to follow. If that is the core principle then the clearest next step to take would be to eliminate this deduction for any home that is not the primary resident of the citizen. The logical reform that follows which is there for the taking is to eliminate deductions on second homes, on vacation homes and the like. That reform leaves the core principle intact and approaches the big picture distortion, the effects of speculative investing on property.
Even if getting rid of the mortgage interest deduction isn't politically likely, I'm glad to hear discussion of it.
How about a discussion of taxing churches?
If the main beneficiaries of this mortgage interest deductions are those in the upper income brackets, how is this not a benefit we can afford to phase out? I know of people who upgraded their homes by moving in order to get a larger deduction! I was told by a builder that if I could not afford the house I bought without taking into consideration the deduction, then I was buying too much house. I suspect that the people who are benefiting most at the top can do exactly that and don't really need it. A tax credit as suggested by one of the guests seems indeed more 'fair' if the tax structure is intended to be fair.
It seems to me it has fueled the increasing costs of buying a home which may have indeed also added to the housing bubble where people were left with houses that dropped in value when they could not sustain the same prices for over blown value. Mortgage brokers always tried to get me to buy more house but I would not do that and I am glad I did not!
Would mortgage interest remain as a business deduction for rental property owners? If not, rental rates would go up significantly to make up the difference.
Homeownership is part of the American dream. The rich have already achieved that dream. Let's limit the deduction to a reasonable amount, so that the rich pay their fair share while the middle class has the dream maintained.
Can we stay on point and on focus, The purpose is to increase the taxes of those in the above 250,000 and more.
It is fool hearty to suggest we the middle class should sacrifice more when the rich have enjoyed enormous gains in wealth. Your panel needs to stay on this point and focus on the wealth paying more.
The implication of this change will further soften the mortgage market. I do not think this is where we want to go!
Investment in second homes etc will go away. Thus this will trnaslate into home prices further deceasing.
People will refinance to shorter term mortgages or pay off the interest, thus impacting the bank infrasturcture.
Didn't we just start to work through these issues?
If banks can get loans from the fed at 0 to.25% then that money should also be lent back out to the consumers (who ultimately fund the fed) at the same amount.
So mortgage interest would be negligible and who would need a "deduction" for that interest?
Banks already inflate the mortgate rate, then add more to it to get an "APR"
, then add more cost to even work on giving you a loan. Where does this huge fleecing of the public stop???
BTW - Each family and each person in essence is a "company", if we want equality maybe we should all be "corporations", lol.
I am interested to hear what percentage of taxes do the population who take the mortgage interest deduction pay. I suspect this group of the population is already paying a dis-portion of the taxes already and removing this deduction seems to target those that are already paying more than their fair share.
Why not have an upper limit to the home mortgage interest deduction? Limit the deduction to the first $5,000 in interest, or some other amount that represents an 80% mortgage on a mortgage on a median (not averge), priced house?
Keep the deduction for middle-class earners!
By ignoring the comparison to standard dedection an extremely deceptive view of morgage interest rate deduction is given. With a hundred thousand salary and a quite a nice house, I only saved about $10 to $15 per month by claiming morgage interest deduction, and that was only for 5 years, then nothing. I think the average American is actually HURT financially by this deduction, as they "pay" the penalty of national debt due to deductions by the wealthy and upper middle class. It promotes inequality of Americans and should be eliminated immediately. Those whom it "helps" do not need it.
The more I listen to this discussion today, the more I believe we should look seriously at FLAT TAXES and I would be interested in the discussion of implementing FLAT TAXES in the United States. Perhaps a show in the making...
or other/all non-profit organizations.
This is nothing but the Republican Party spanking the American people for re-electing a President who cares about the middle class. If we start doing away with the mortgage interest at the top earners...it's only a matter of time when it will hit the middle class.
Here's a thought--- if they take away the mortgage interest, lower the taxes we will pay as long as we live in our homes. For some of us, that means more than 30 years. And, because this means less people will be buying homes---doing something about a renter's cap. If I lose my home I can't afford to pay rent. At year 15 of being in my home I look forward to the mortgage int. deduction each year.
What about the risk that because, for many people, this is the only obvious exposure they have to government subsidies/welfare, they come to think of all government welfare programs as this kind of possilby over- generous "golden gift."
Also, was it possibly, originally a gift to potential home buyers, home sellers, real estate brokers, loan makers, builders, construction products businesses, to get their support for other government welfare programs, because they were getting something, too.
Mr. Yun is absolutely incorrect based on my opinion...
I own a home and I decided to buy a house for a variety of reason. The mortgage interest deduction was a budgetary line item for me to use to lower my taxes.
Love the idea of the family as corporation...one of the guests just said we as families cannot benefit with tax breaks for our consumption but corporations can...when they buy things they write off the taxes by accounting for the purchases over the life of the product and in effect the payrolls they pay are their consumptions. Can we write off the allowances we pay our kids? Rich people can set aside 'gifts' to their kids and take them off their taxes!
As usual it's only about squeezing more money from the private sector to pay for ever growing unconstitutional government activities. Never cutting anything, spending is the problem.
Who are middle class earners then? Someone called in and implied folks making 250K are middle class!
I am 34 years old, college educated & trade capable, & carry many certifications & skills in tourism & hospitality industry. I live well under the poverty line on personal income, for the most part, generally very democrat/libertarian in my politics, tho hold some traditional republican & small business values in my view. I have many family & friends from my home area who would be in high income property & business ownership. Even tho I fight & struggle with some of the strangle hold market position held by these upper middle class culture that hold several homes n private areas n properties and am torn on the issue. I can see some small adjustments made to make a bit more directive focus to the deductions and give some breaks to those of us at the bottom chugging along, however I am NOT for the mortgage interest tax deduction removal. It is essential to maintaining the wealth developed over time by this class of our society & does create stable wealth in family & communities. This can get passed down and through families communities , marriages, and all the communities that grow up around them. Removal of this is so bad for the economy and effectively removes a buffer layer of strong upper middle-class between the very top and the very bottom. We need the mortgage interest tax deduction! perhaps only a tweaking !
I'm beginning to believe that "flat" or "bumpy" tax doesn't matter. The lobbyist, politicians, and those who oppose the middle class, will find away to "work" the numbers in favor of the wealthy.
I agree with you totally...when figured out as a monthly benefit I think it blinds us to those who are getting the most from this deduction.
Its time to make the personal income tax code fair and eliminate all special interest deductions including the mortgage interest deduction, religious and charitable deductions, political contributions, 503 deductions, etc. The only deduction that should remain is the personal exemption. This deduction should be raised in proportion to the sum of all the deductions that get eliminated. Individuals can then decide what is important to them and contribute or invest in that activity without the outside influence of Government lobbyists using the tax code to support a specific activity. In the end taxpayers will make smarter use of their money.
Further curbing the mortgage interest deduction (and other intermized tax deductions) -- rather than raising tax rates -- will mostly raise taxes on the "moderately well off," not the wealthy. The moderately well off constantly get hit with a bubble of higher income taxes due to things like phase outs of deductions and credits and the alternative minimum tax. These supposed "crack-downs" on "loop-holes" have little impact on truly rich folks who benefit from extremely low tax rates on capital gains and dividends and more sophisticated tax reduction schemes.
THX1138 wrote:
"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."
Huh? The private sector is paying for the military? The private sector is paying for roads? The private sector is paying for the corporate welfare?
Boy, sometimes I would like to be able to do these kind of mental gymnastics but that darn reality keeps getting in the way and I cannot ignore it.
It's not just Mortgage Interest. If I do not deduct Mortgage Interest, I do not have enough other deductions to itemize. Charitable deductions would not be deductible.
If you eliminate Mortgage interest deduction, raise the standard deduction from 6,000 to 8,000. Well, that covers what I would lose from the Mortgage, but not those other deductions.
I do favor removing the Mortgage Interest deduction on second/vacation homes.
THX1138 wrote:
"Never cutting anything, spending is the problem."
Really go back to the last time the politicians were ready to send this country into the financial unknown. It was resolved almost exclusively with cuts. This is a direct contradiction to your statement. One can argue about if it was sufficient or not, but not that there is never any cutting.
"lobbyist, politicians, and those who oppose the middle class, will find away to "work" the numbers in favor of the wealthy?
"oppose the middle class" what does that mean? The wealthy are wealthy because of a thriving middle class and they know it, for the most part they did not get rich by being stupid. The government is by far the biggest threat to the middle class, that is where most of the money is and that is where the government needs to take it from to pay for it's existence.
Mike Sergeant wrote: ?
I have no idea what you are talking about.