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I found this article a couple weeks ago. It talks about how the tax code encourages debt, and the article specifically touches on the issue of mortgage-iterest deduction.
Some excerpts:
Quote:
Individuals are able to write off all their mortgage interest, up to a million dollars...<snip>. This gives the system what economists call a “debt bias.” It encourages people to make smaller down payments and to borrow more money than they otherwise would, and to tie up more of their wealth in housing than in other investments.
Advocates of the mortgage-interest deduction, for instance, claim that it increases homeownership rates. But it doesn’t: in countries where mortgage deductions have been eliminated, homeownership rates haven’t dropped. Instead, the deduction simply inflates house prices.
The "encourages home owership" argument is based on bad economic theory. Without the deduction, the price of homes would be lower by the amount of the benefit it provides to the homeowner. Home buyers are payment buyers. The real beneficiary is the mortgage lenders since the deduction encourages loans over cash purchases.
You got that right--at least in theory. I bought my house 25 years ago, so my loan is pretty low. I deduct very little interest now. The guy accross the street bought his about 4 years ago. He deducts much more interest than I do. So how come my house and his house sell for the same price? Your statement seems to indicate that his house should sell for a higher price. This confuses me. If the deduction were not allowed, how would it really affect the price of my house?????
You got that right--at least in theory. I bought my house 25 years ago, so my loan is pretty low. I deduct very little interest now. The guy across the street bought his about 4 years ago. He deducts much more interest than I do. So how come my house and his house sell for the same price? Your statement seems to indicate that his house should sell for a higher price. This confuses me. If the deduction were not allowed, how would it really affect the price of my house?????
Yeah, I don't buy his argument. Loaning money on homes helps people get into a house which could increase demand.
A mortgage just makes a home available for more people to purchase.
Yeah, I don't buy his argument. Loaning money on homes helps people get into a house which could increase demand.
A mortgage just makes a home available for more people to purchase.
Having a tax deduction for mortgage interest may in fact increase the price of homes....but the increase is not equivalent to the value of the tax cut. I don't know what it is equivalent too....unfortunately, I am too lazy to do the primary research myself. Has anyone done it? Or read some?
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