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?
More from Bargaineering and MSN Money
- How to save money on moving
- Don't play the lottery
- Calculating cost of living: Where you live matters
- Calculator: How much house can you afford?
- 4 tax breaks for homeowners
- What's your real tax rate?
I THINK YOU ARE BOTH OUT OF YOUR MINDS. GET OUT OF THE FINANCIAL BUSINESS!
I love these ideas that aren't well thought out.
Used to be we could decduct ALL loan interest dollars but that ended in the seventies, the talk then was of failed car dealers and loss of sales in furnishings etc. Did slow for awhile then the next generation that never had the deduct came to play and it slowly ebbed a little back but it never reached the levels of credit and bank incomes of the sixties/seventies. Want to cripple a little more of the economy, it won't be a permanent result but it will still hurt if those that can make the deduction have it no longer. We are speaking of those that have enough money to buy and support tax bases, they slow spending and the taxes must be made up elsewhere just as in the tobacco sales ebbs debacle we currently see, the windfall there was to pay for medical expenses but as taxes raise spending drops and the two balance at the same point still
Using basic math, this will never happen. For any home over $100,000 the owners take the deduction. The effective cost of your mortgage goes down by your interest rate - your tax rate. So without this, your mortgage would effectively go up 20-30% for most middle class Americans. Therefore prices would suffer equally, in the middle of a horrible time for housing. I just won't happen.
To be honest, charitable giving is a better target. The benefit of giving is for the same people (who itemize deductions). Your effective cost to give is less the higher tax bracket you are in (say you give $100 and you are in the 25% bracket...it cost you $75 to give rather than the person in the 35% bracket who paid $65). So - assuming we have to all pay the same amount of taxes collectively - that pushes the tax burden down to people in lower tax brackets *shrug*
this is SUCH a 1%er mentality - those people who are independently wealthy that can afford to buy a house with cash in the first place. what incentives are there to the other 99% of the population to buy a home if this is rescinded, other than resale value of the property? why would ANYONE agree to a 30 year mortgage to buy, say, a $200,000 house that ultimately ends up costing them $600,000 because of interest on that mortgage? no one would buy a house - it would be MUCH cheaper in the long run just to rent an apartment. talk about Ivory Tower thinking.
anyone that wants to kill the mortgage interest tax credit should use the bullet to kill themselves
just another idiotic republican idea.
Where is the data to support , "big houses get bigger tax breaks, driving up prices for everyone."?
Eliminating this tax break will send the economy into a tailspin. Don't you think that the more money spent paying mortgages, etc. means the less money to buy goods and one of the reasons the economy is taking longer to recover while the banks recovered just fine after the bailout? The banks are dragging the heels in helping homeowners while accepting cash offers for the homes (once foreclosed) of 50% of the mortgage. Isn't this why if the mortgages were refinanced faster in these fed programs, people would have more discretionary income which would lead to higher consumer confidence and therefore more spending which would drive up demand for goods, jobs, etc. you know the cycle that drives the economy? I know this is simplified but what is your train of thought as well as the economists?
The author probably rents...
This is an idea that will never fly, just keep reading the comments before...it's political suicide for anyone even talking about it. It flys against the fabric of the 'American Dream', whether that is something real or not, it's still a dream to many. I've purchased six primary residences in my life, and each and every time I absolutely considered the tax consequences in my purchase decision.
Obviously, those who own a home understand the benefit of the mortgage interest deduction and those that are opposed to the idea probably don't own their own home. It's a battle of the haves and have nots. Benefit of success versus failure of complacency.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Occupy Wall Street bought and forgave the student loan debt of more than 2,700 Everest College students.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'