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I am in favor of a phase out of home mortgage interest deductions.
A 7 year phase out would make sense since the average mortgage is only held that long (refinanced, sold, etc.)
It is distorting the true value of a home and increases the price of a home. The ones that benefit are those in the transaction for a fee of the sales price (govt tax agencies, real estate companies and agents, etc.)
And it reduces the income tax base when many governments (state, local, federal) are in deficit positions.
And remember... renters don't benefit, elderly that have paid off their house don't benefit (retired people).
Would you also phase out all the tax deductions landlords get?
If not, all this proposal would do is transfer wealth from homeowners to government and to landlords. Doing this would reduce peoples preparedness for retirement since home equity is a big component of many people's retirement savings or security (no house payment).
It would likely hurt local governments if it reduced home values and/or appreciation. Since many local governments rely heavily on property taxes, a decline in the value of the properties reduces their revenue or requires them to increase the tax rate % to keep the same revenue. This happened in many areas when real estate prices dropped a few years ago and the results were really bad for local governments and the services to the communities they serve.
Also, phasing out the mortgage interest deduction WOULD hurt renters. If the deduction phased out, some current owners would choose or be forced to become renters. This would increase demand for rentals, driving up rents. Just like what happened in many areas of the country when the foreclosure crisis caused a number of former homeowners to become renters. The result of this increase in demand is a wealth transfer to landlords.
It would also hurt retirees by reducing their home values and/or appreciation.
I came across this article today as it was posted in my Google search alerts. These are the highlights the piece points out that will or could be part of the fix to SS.
1) Limit tax-deductibility of mortgage interest
2) Shrink Social Security benefits for the wealthy
3) Cap total assets in tax-advantaged savings accounts
4) Close the ‘stretch’ IRA estate-planning loophole
It isn't a big article so I will just let you all read it but the last two have nothing to do with SS but they seem to be trying to limit wealth creation.
I don't see how 1), 3), or 4) would help fix SS. They just seem like a blatant money grab by the federal gov't to pay for who knows what since all they would do is provide more revenue for the general fund.
I described why 1) is a bad idea above.
I think 2) is likely to happen. Higher earners already get less out of SS proportionate to what they put in compared to lower earners. The issue with going further in this direction is that it will erode support for the program as a whole among the people who are most politically active (higher earners). In the long run, if enough people turn against the program it will eventually get dismantled or reorganized in a way that probably does more harm than good for lower earners.
3) Makes no sense. It works counter to the goal of encouraging people to fund their own retirements, increasing their dependence on SS, not reducing it.
4) I don't know enough about this to comment, but it seems like it would raise a relatively small amount of revenue and may have bad consequences for certain groups of people (discussed earlier in the thread).
I've never really understood why so many people are so adamant about keeping the mortgage deduction. It mainly benefits people with a large mortgage; most people get no benefit from it.
However, I also understand that the National Association of Realtors and the homebuilders have powerful lobbies in Washington, so I don't think that it will be going away any time soon. Any time that noises are made about changing it, the machine cranks up the scare tactics about how changing it would do great harm to the housing market.
Large mortgages help local government by driving up property values thus increasing property tax revenues for local government at the expense of income tax revenue for Federal government. So who do you want spending your money, local or federal government. Part of the hidden agenda of this is once again the income inequality argument as it is more affluent communities getting the higher property tax revenue. Thus once again we see a scheme to transfer wealth from the more affluent to be redistributed to the lower income via federal taxes and policy. Any time Theresa Ghuilduci is involved you can figure out the angle.
I've never really understood why so many people are so adamant about keeping the mortgage deduction. It mainly benefits people with a large mortgage; most people get no benefit from it.
When I was young and starting my career, home interest deduction was a big factor in my decision to buy a house. Being able to deduct the 7-8% interest and property taxes allowed me to file long form and also deduct state taxes and charitable donations. So as a single person in the 25% tax bracket, my deductions were about 3 times the standard deduction. Just the interest and property tax deduction alone paid for 2-3 mortgage payments. And this was a $140K mortgage, not a large mortgage. Most of my married peers were just as anxious to buy a home partly for the tax advantages. While CSRSJim's position that the interest deduction drives up the price of a home has validity, I would hate to see young people be discouraged from home ownership just because the deduction is not important to older people who have paid off most of their home.
I don't see how 1), 3), or 4) would help fix SS. They just seem like a blatant money grab by the federal gov't to pay for who knows what since all they would do is provide more revenue for the general fund.
I described why 1) is a bad idea above.
I think 2) is likely to happen. Higher earners already get less out of SS proportionate to what they put in compared to lower earners. The issue with going further in this direction is that it will erode support for the program as a whole among the people who are most politically active (higher earners). In the long run, if enough people turn against the program it will eventually get dismantled or reorganized in a way that probably does more harm than good for lower earners.
3) Makes no sense. It works counter to the goal of encouraging people to fund their own retirements, increasing their dependence on SS, not reducing it.
4) I don't know enough about this to comment, but it seems like it would raise a relatively small amount of revenue and may have bad consequences for certain groups of people (discussed earlier in the thread).
3) has been proposed by Obama. I hope it don't gain any foothold because it would certainly be bad. I already think that IRA's and Roth IRAs are too limited now. 5k per year is not nearly enough for a person who has no 401k. It hurts someone who in his/her mid 30s just starting to realize they need to save.
When I was young and starting my career, home interest deduction was a big factor in my decision to buy a house. Being able to deduct the 7-8% interest and property taxes allowed me to file long form and also deduct state taxes and charitable donations. So as a single person in the 25% tax bracket, my deductions were about 3 times the standard deduction. Just the interest and property tax deduction alone paid for 2-3 mortgage payments. And this was a $140K mortgage, not a large mortgage. Most of my married peers were just as anxious to buy a home partly for the tax advantages. While CSRSJim's position that the interest deduction drives up the price of a home has validity, I would hate to see young people be discouraged from home ownership just because the deduction is not important to older people who have paid off most of their home.
So you are in favor of people buying a second home at the seashore and being able to deduct the mortgage interest up to $1 million (joint filing)? Just my opinion, but that seems a bit more than someone who is young starting out with home ownership.
My thoughts are to make some reasonable changes to the deduction (baby steps). Maybe like not allow on second homes and put a limit on the mortgage deduction amount. I know that the argument about wealth transfer will always be attached to this, but to me, it is more like narrowing a loophole for wealth transfer to the wealthy.
So you are in favor of people buying a second home at the seashore and being able to deduct the mortgage interest up to $1 million (joint filing)? Just my opinion, but that seems a bit more than someone who is young starting out with home ownership.
My thoughts are to make some reasonable changes to the deduction (baby steps). Maybe like not allow on second homes and put a limit on the mortgage deduction amount. I know that the argument about wealth transfer will always be attached to this, but to me, it is more like narrowing a loophole for wealth transfer to the wealthy.
The posted article proposes eliminating the interest deduction for second homes, HELOCs, etc. I don't have a problem with this. But I was responding to your comment that the home mortgage interest deduction benefited only those who had large mortgages and to others who stated that the deduction benefited only a few. I disagreed with your previous statement.
The posted article proposes eliminating the interest deduction for second homes, HELOCs, etc. I don't have a problem with this. But I was responding to your comment that the home mortgage interest deduction benefited only those who had large mortgages and to others who stated that the deduction benefited only a few. I disagreed with your previous statement.
Sorry about my response; I do get a bit wound up when it comes to some of these sacred cows that appear to benefit only a minority of the people. But they can't be changed because of the power of the people who do benefit from them.
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