Kill the mortgage tax deduction?
Some people argue the break distorts the housing market and unfairly helps buyers who can afford more expensive homes.
This post comes from Jim Wang at partner blog Bargaineering.
I promised you that we'd discuss Planet Money's "6 policies economists love (and politicians hate)." Let's talk about the first one: eliminating the mortgage tax deduction.
Here's how Planet Money presents the idea, part of "the common-sense, no-nonsense Planet Money economic plan -- backed by economists of all stripes, but probably toxic to any candidate that might endorse it":
Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?
I agree and here are my three reasons why.
Post continues below.
Second, how many people consider the deduction when buying a home? You probably look at your income and try to qualify for a loan. How many buyers adjust their withholding after they buy a house because they know they will claim the deduction? Very few, I suspect.
It's not part of the buying decision. Rather, the deduction results in a tax break, disbursed as a tax refund the following year. That money is then doled out to whatever the recipient's existing needs or wants are.
Third, the deduction is a government subsidy that increases home prices. Just as the Fed's quantitative easing and loose monetary policy have resulted in lower interest rates -- which increases home prices -- the mortgage deduction is fiscal policy that boosts home prices and rents.
What do you think? Time to scrap the deduction?
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I am 70 years old. Work fulltime, make about $40,000. The main reason we are buying is for the MID. Kill the MID, we will sell and go rent and let the landlord fix stuff that breaks, pay the insurance and taxes, mow the yard and do the landscaping. We will just eat and sleep there and leave everything to someone else. How many millions will take that route? And there goes the housing market .. forever! The time rquired to get all those vacant homes occupied will take decades and housing values will collapse further. We should leave MID alone or we will see more unintended consequences.
Ps: I am a real estate broker
doing away with the deduction will mark the offical end and death knell of the American Dream. Home ownership is part of that dream. As is a good job paying enough to support your family, but that's another story.
Why would I buy a home instead of renting? Hmmm. Two reasons, One is maybe the investment will increase in value. Hmmm, not in today's world. The other is the old view that renting was just throwing money away. Really? As a renter, I'm not responsible for cost of maintenance and repairs to the property. Granted, if I'm rough on the property as a renter, I'll have to pay for repairs, but the day-to-day problems with major appliances, water heaters, furnaces, roofs, exterior painting and the like is the responsibility of the property owner.
So go ahead, do away with the deduction and watch an already stagnant housing market become a total disaster.
End all Tax Deductions. Tax me for what I earn, when I earn it and then eliminate tax returns altogether for a majority of Americans. If I owe 20% then tax me for that and then leave me alone. If I earn income from investments, then tax me when I receive that income. Why am I, a person with no family, no home and no income from investments force to file a tax return. We could cut the IRS budget in half if Americans such as myself were removed from the obligation to file a tax return. If the tax laws worked correctly I would owe the government nothing and it would owe me nothing at the end of the year.
Can't we have some small amount of common sense in our government or does it always have to be run as such a cluster "F__K".
I'm all for getting rid of the mortgage interest deduction. As long as they get rid of all deductions,loopholes,special interest and the entire progressive tax system. It seems the only really fair system is to tax everyone at the same rate, rich or poor. Yes the 48% of the people who pay nothing yet are consuming most of the resources might have to start paying.
We would have more money than we know what to do with. Hold the politicians to their fiduciary responsibilities of having a balanced budget like they require of the states. Stop all the unfunded mandates and get back to the basic intent of the role of governement as spelled out in the constitution. Give the states more responsibility and liability for their own residents by keeping the taxes local. Have a 10% sales tax on every product and service, no income tax and send it to the state. What's left over after a state balanced budget goes to the fed's. Simple. This could be accomplished if we limit ALL politicians to a single 6 year term-no do overs, mulligans, relection concerns, etc. If they fail, no pension, no benefits and they all have to live within the rules/laws/systems they create.
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