Death Of The Mortgage Interest Deduction…Should We Save It?
This Market Is About Helping Others.
This Market Is About Helping Others.
HREU Students and future students….we want to know what you think about this subject. As you may know it appears that the mortgage interest deduction is under attack. Some believe that the elimination of the deduction would further harm the housing market. Others believe that is a hand out….tell us what YOU think. What you think matters to us!
USA Todays view on mortgage deduction: Huge housing subsidy boosts the deficit, benefits the rich
Overly generous tax break helped inflate bubble, distort the market.
Four years ago, when housing was booming, a commission appointed by then-President Bush took aim at one the biggest sacred cows in the tax code: the deduction for interest paid on home loans of up to $1 million. Housing groups howled at the panel’s proposal to trim the deduction, and the plan died in a matter of days, if not hours.
Now fast forward to 2009, when President Obama and Congress are trying to find ways to pay for health care reform and reduce scary federal deficits. Obama has suggested limits on deductions including mortgage interest for wealthy Americans, a move that would raise about $31 billion annually.
Obama’s plan is being met with similar wailing from the home building, selling and financing lobbies, which argue that a housing bust is the worst possible time to talk about curbing the mortgage deduction. Actually, if done right and applied to new mortgages, a gradual reduction in the deduction could have significant benefits, both now and in the future.
As things stand, the nation’s housing subsidies are distortive and make little sense. For one thing, the interest deduction does no good for people generally in the lower income brackets who don’t itemize. Why should the government be subsidizing million-dollar mortgages, plus providing an interest deduction on an additional $100,000 for a home equity loan?
In addition to being regressive, the $80-billion-a-year mortgage interest deduction has had a number of unfortunate effects on the economy. In areas of limited new housing, mostly large cities near the coasts or other geographic barriers, it helped drive up prices to unaffordable levels, undermining its purported purpose of promoting home ownership.
Subsidizing people to borrow also encourages people to, well, borrow. Looking back at all the reasons why people took on mortgages that were simply too large, tax policies that greatly advantaged debt-financed home purchases over other forms of investment were a big part of the problem.
After having wrapped themselves in the mantle of promoting the American dream, the housing lobbies argue that limits on subsidies would thwart recovery in home prices.
That’s questionable. Obama’s plan would continue the deduction for mortgages of up to $1 million, but would allow people only in the top tax bracket to deduct 80% of it.
The 2005 commission argued for reducing the size of the mortgage covered to a sliding scale ranging from $170,000 to $412,000 depending on the cost of real estate in the area. It also structured the tax break as a credit to allow the many non-itemizers to take advantage of it.
The best approach might be to gradually scale back the $1 million deduction limit on new mortgages, perhaps by $100,000 a year for five years. That would increase fairness and reduce the deficit. It would also aid the housing industry now by encouraging people to buy while the limit is still high and help to prevent another bubble once the market recovers.
Popularity: 1% [?]
Similar Posts:
- The Death Of The Heloc…Millions Of Homeowners Shut Out. Most major lenders are freezing withdrawals from...
- 100 Year ZERO Percent Mortgages | Would You Take A 100 Year Mortgage? | Realtor Coaching and Training If you thought 40 years mortgages...
- What Must Happen Now To Save Housing. This is an open appeal to US...
For those who say that this would reduce home ownership, how do they explain that there are countries that have no mortgage deduction, but who have equal or higher rates of home ownership?
Do not think it is a good idea and especially not now….. yes it does to some extent subsidize home ownership but home ownership has always and continues to be a stabilizing factor for all of society. I have been involved in various facets of real estate for 40 years and home ownership is one of the most powerful forces for family, community, and societal stability and growth there is.
This is simply another push to redistribute $ from the status quo to bigger government and socialist programs. Homeownership is a better, more efficient, more effective utilization of $ than anything I can think of.
The arguement that the mortgage deduction is not of value to many people because they do not itemize is nonsense. If it is not being used then it is not costing revenue. For many the reason they are not itemizing is that they have been given greater deductions than would be allowed with out itemizing. What this means is that they have been in effect subsidized and the tax rates are really more progressive than the tax tables would suggest.
To suggest that there is more borrowing because of mortgage interest deductions is misleading. To the extent that the housing purchased is needed, whether money is borrowed by an owner-occupant or an investor for rental property is of little consequence to the amount of borrowing.
One could argue that owners tend to purchase more housing than they need and mortgage intrest deductibility encourages that. To me this smacks of the socialist or communist notion that the state knows best and will allocate according to its superior abilities. I believe that this is exactly what Obama believes to his very core.
If the purpose of putting a limit on deductibility for the purpose of digging out of the present crisis it might be worth considering. However, given that the purpose is to expand government spending and simply change from something that has long proven benefits to something which is antithetical to the free enterprise system, I say NO WAY!!!!!
I like the 2005 plan. Liked it then, like it now.