6 ms·

The Case Against the Mortgage Interest Deduction

44 points by tnorthcutt 10y ago

koolba 10y ago
> The largest tax break relates to health care: it makes the premiums paid by companies that offer health insurance exempt from payroll taxes. We really should start with that one. If anything, replace it with an individual deduction. It'll be a double-whammy. Get rid of this bullshit subsidy for large corporations and at the same time level the playing field for small businesses and individuals trying to get coverage.
- nickff 10y ago
  The health insurance exemption only helps the healthcare industry; without this exemption, people would rather be paid cash than get expensive extra healthcare benefits. People would probably rather buy their own health insurance than have an employer choose it, and most employers would rather offload the trouble of managing health insurance (as many have healthcare departments, which is not their core competency). Unfortunately the Affordable Care Act (A.K.A. ACA, Obamacare) cemented employer-purchased healthcare into place with the employer mandate.
  - lotsofpulp 10y ago
    I think it's also possible that a large employer being able to offer health insurance much more cheaply per employee than a small employer can gives the large employer that much more advantage over the small one for no reason.
    - nickff 10y ago
      That is a very good point, and I have never looked at it that way. Unfortunately, this is exactly what we should expect, as governments usually consult large organizations for feedback, and small (or as-yet unformed) organizations are put at a great disadvantage.
    - venomsnake 10y ago
      And it is a way to a job serfdom - the cost of unemployment is greater. And - is anything worth risking my family health plans for? Employer provided insurance should stop existing.
  - stanleydrew 10y ago
    The ACA was directionally correct in terms of the individual mandate though, and hard enough to pass as it was. I would expect with a Hillary presidency we'll see more progress made towards separating employment and healthcare.
    - koolba 10y ago
      > The ACA was directionally correct in terms of the individual mandate though, and hard enough to pass as it was. The ACA was a cop out. If you're not going to go to either single payer or at least include a public option (i.e. buy into the equivalent of public Medicare) then it's all a way to force people to send money to insurance companies. The Dems had a supermajority in the senate but either didn't have the balls to do the right thing, or, more likely, just wanted to suck up to their corporate interests. > I would expect with a Hillary presidency we'll see more progress made towards separating employment and healthcare. Ha! I'm sure she'll be just as tough on Wall street too.
- lotsofpulp 10y ago
  It really shows how corrupt the system is. If you buy insurance yourself on the exchange, then you pay with post tax dollars. If you happen to work for a large company whose population is obviously more desirable to insure, then you get a huge discount on health insurance. If you're a small employer employing people on the lower end of the economic scale, then you pay through the roof if you want to buy a group health plan because your population is probably not too desirable, and if you try to reimburse your employees for their own individually purchased health insurance (because you don't have time to deal with all the stupid health insurance laws like COBRA and stuff), then you also pay with post tax dollars. Using the tax code as a political bargaining chip is a time honored tradition that, unfortunately, isn't going away soon.
  - ceejayoz 10y ago
    > If you buy insurance yourself on the exchange, then you pay with post tax dollars. It's deductible at tax time, though.
    - ams6110 10y ago
      Can you pay the premium out of an HSA? That's pre-tax.
      - ceejayoz 10y ago
        To my knowledge you can only do that if it's COBRA or a few other fairly unusual situations.
      - chiph 10y ago
        My reading of IRS publication 502 is that you can pay COBRA premiums, medicare, and premiums if you are on unemployment, but not otherwise.
      - koolba 10y ago
        No an HSA is for out of pocket expenses. Monthly premiums cannot be paid from it.
    - 10y ago
- fweespeech 10y ago
  > We really should start with that one. If anything, replace it with an individual deduction. It'll be a double-whammy. Get rid of this bullshit subsidy for large corporations and at the same time level the playing field for small businesses and individuals trying to get coverage. We really should just drop both and replace it with an increase in the standard deduction for individuals.
  - maxerickson 10y ago
    Given that deductions come out of top bracket income, it might be more fair to adjust the brackets and reduce the standard deduction. Of course it all depends on what the hell fair means. The people with income in higher brackets are still paying more taxes after deductions.
    - fweespeech 10y ago
      I'd say the poorer you are, the more you need the tax deductions honestly.
- ArkyBeagle 10y ago
  It really does not matter if they're tax exempt at payroll disbursement time or as a deduction on filings. The trouble with employer-based health care is much more about the fact that employers get a volume discount that individuals or small businesses do not. Even then when Ive worked W2 contract, I've had health care offered by the contracting company for reasonable amounts.
matt_wulfeck 10y ago
> It first appeared in 1861, born out of a necessity for Civil War funding, and in 1913, Congress made the income tax a permanent part of American life. And federal income tax should again be eliminated. The federal government should get fed from the hands of the state, not the other way around. Having all of the money flow down from the top is helping to create this mess we're in now. The one that controls the purse holds the real power. Federal income tax is consolidating that power at the top.
- ubernostrum 10y ago
  The Civil War, and the period preceding it, sort of put the lie to any attempt to idealize the states as somehow a more pure, less-corrupt or less-oppressive place to put government power.
  - ArkyBeagle 10y ago
    Lincoln put it best - half-slave and half-free won't work. They were legally immiscible ( unmixable ). The abuse of "states rights" in text by Southrun Lost Causers is invalid and should be discarded - the Fugitive Slave Act and the Dred Scott decision clearly showed that they wanted Federal enforcement of that "state's right". You have the emerging legal unsustainability of this, coupled with slaves being the only asset of value left in the South. So, war, war.
- Mz 10y ago
  If you read the history, the form of government the US has failed and failed and failed while trying it the way you describe. The US was on the verge of collapse when it re-arranged things a bit and handed over more power to the federal government. That's why the country still exists. In its earliest days, it was in danger of collapse just like every other state that had attempted the same kind of organization. If we take away the federal government power to a) raise money and b) keep a standing army we will likely see this country destroyed in short order, whether from within or from without. Quite a few countries would be thrilled to pieces if we hamstrung our federal government so they could invade and do as they please.
danhak 10y ago
Unfortunately the mortgage interest deduction is a major third rail in U.S. politics and it is probably here to stay. This article is 100% spot on though--it is a completely regressive policy and privileges those with enough capital to purchase real estate at the expense of those who have no choice but to rent.
- underbluewaters 10y ago
  Yep. While in the abstract I would support eliminating it, now that I've finally purchased a home I'm against any changes to the status quo. The very economics of this huge purchase are only made rational by that deduction.
  - maxerickson 10y ago
    What about phasing it out over 20 years? The deduction related to the purchase decision you just made will be a lot smaller by then and you would know what the new rules were for future decisions.
  - hx87 10y ago
    What about implementing an equivalent deduction for renters? I know renters theoretically benefit from their landlord's deduction, but that only applies if the landlord is carrying a mortgage, and tax benefits for landlords have a dubious record of filtering down to renters.
- rwmj 10y ago
  The equivalent in the UK (MIRAS - https://en.wikipedia.org/wiki/Mortgage_interest_relief_at_source https://en.wikipedia.org/wiki/Mortgage_interest_relief_at_so...) was abolished in 2000 without too much fuss.
- DrScump 10y ago
  Only if you look at it as media moguls try to sell the concept. As implemented, much of the benefit goes to the wealthy with both pricey primary homes and with secondary homes. If you instead limited it to primary homes only and only up to, say, property prices 1.5 times the median single family home price for the area, you'd recover a majority of that deduction right off the bat without harming lower- or middle-income home ownership or causing a dive in property prices or lose the stability benefits of home ownership.
matt_wulfeck 10y ago
> the mortgage interest tax deduction, which, at an annual estimated cost of $77 to $100 billion... Oh please. What a puny number that benefits such an enormous amount of regular people. The cost of war in Iraq is estimated at $12 billion a month[O]. Eliminating this deduction wouldn't even buy us another senseless and irresponsible war! [0] http://www.businessinsider.com/the-iraq-war-by-numbers-2014-6 http://www.businessinsider.com/the-iraq-war-by-numbers-2014-...
- hx87 10y ago
  If it's a puny number, and enormous number of people benefit from it, and the benefit is 100% financial (as in this case), then each person isn't benefiting all that much from it.
- breischl 10y ago
  >>What a puny number that benefits such an enormous amount of regular people. Well, I guess that depends on your definitions of "puny" and "regular". Since 75% of the benefit goes to people making over $100k/year, that must be your definition of "regular people." Which isn't really statistically defensible, but might be your personal experience. I'm not sure $100bn really counts as "puny" even to the Feds, though. Granted 3% of last years' revenues isn't a huge number, but neither is it a rounding error. Personally, I think it's absolutely silly to forego tax dollars to encourage people to go into debt. Not that I'm above taking advantage of it every year, and probably deriving more benefit from it than most. I'm still trying to figure out what any of this has to do with the Iraq war, though.
  - sokoloff 10y ago
    > 75% of the benefit goes to people making over $100k/year It's much closer to households making over $100K/yr than people making that.
- JauntTrooper 10y ago
  $77-$100B is equal to $618 - $800 per US household.
Analemma_ 10y ago
The first comment in that article points out what's really the cherry on the stupidity cake: it's not even that the mortgage interest deduction is small-but-at-least-something for middle-class families. For a lot of them it's literally zero, because it's often less than the standard deduction. Even leaving aside the political class's counterproductive obsession with homeownership, the insanity here is of the masses passionately supporting a $100 billion annual expense that benefits them not one cent. Just another one of those things that makes me fantasize about a rationalist dictatorship, before I sigh and return to the real world.
- ams6110 10y ago
  The mortgage interest deduction is the thing that makes it possible to itemize for most people. Then you also get to deduct your property taxes, your state income taxes, charitable contributions, other misc stuff. Any of those things separately is often less than the standard deduction. But all together they are more, and the mortgage interest is generally the biggest and the one that pushes it over the top.
  - breischl 10y ago
    Fine, but then it's only helping to the extent that the taxpayer is over the standard deduction. If their mortgage interest was $1000, but they end up just $1 over the standard deduction then technically it helped - but only by 15 cents (depending on their marginal rate).
- sokoloff 10y ago
  That depends quite a bit on your state income tax and real estate taxes. In MA, it's quite easy for those to exceed (or near) the standard deduction amount, meaning the mortgage interest deduction will push you over into itemizing. A single person earning $60K and paying $4K in real estate taxes has already exceeded the standard deduction amount.
deleted 10y ago
[deleted]
salimmadjd 10y ago
Isn't this just an indirect subsidy for banks? Basically, the government partially pays for the interest rate the bank charge on your mortgage.
acbabis 10y ago
> For this reason, organizations like the Congressional Budget Office treat tax breaks and government spending as essentially equivalent. This seems weird. Collecting and spending money has overhead and externalities (enforcement for example), while not taxing in the first place does not.
- dak1 10y ago
  There's definitely an overhead to tax breaks. There's a difference between simplifying the tax code, which would theoretically reduce overhead, and providing an itemized tax break, which actually increases complexity (and yes, there's enforcement of that tax break too). Treating a tax break like government spending seems completely rational.
- acbabis 10y ago
  Now that I think about it a little more, this seems like a red herring. Just because the budgeting office says two numbers are the same on paper, doesn't mean anything about the efficacy of the policy, for or against.
  - deleted 10y ago
    [deleted]
- boxy310 10y ago
  "Not taxing" also includes overhead for ensuring that people aren't abusing the deduction or exemption, or the societal/political costs involved in the perception that select few get a free pass (i.e. overshore tax shelters).
- guyzero 10y ago
  Those externalities are already being paid.
- hx87 10y ago
  Even if a tax break is simply lowering a marginal rate (which it rarely is), it's not like enforcing a 36% tax is less costly than enforcing a 40% one.
tormeh 10y ago
Housing prices are whatever people are able to pay. If everyone's able to take up a bigger loan thanks to mortgage interest deduction, then house prices will rise to meet the increased demand. End result: We have to effectively pay the same (bigger loan but with tax deduction), but because everyone takes up bigger loans the national economy becomes more brittle. Yay? It's just the government pushing money into the construction industry, which really is the only beneficient, and it's all disguised as a gift to the middle class. It's just dumb.
- dragonwriter 10y ago
  > Housing prices are whatever people are able to pay. I fail to see the justification for concluding that housing prices are set by demand alone, not the usual interaction of supply of demand.
  - tormeh 10y ago
    The short-term supply of housing is fixed. Yes, there will be an increase in renovation of houses due to larger loans being affordable, but most of our housing costs are the cost of centrally located floorspace anyway, whose supply moves really slowly. Supply of central floorspace increases due to mass transit buildout, city expansion, and building height, only the last of which depends on average ability to pay for housing. Building height is usually restricted by zoning, in which case average ability to pay doesn't influence supply at all.
    - dragonwriter 10y ago
      > The short-term supply of housing is fixed. Sure, so the immediate-term effect of a change in policy on the deduction would be what you would expect with a fixed supply; but that's hardly the only, or most important, effect to consider with a long-term policy.
      - bufordsharkley 10y ago
        Land-use policy makes it far more attractive to resist growth, enact restrictive zoning laws, and engage in speculation, rather than listen to the signals of demand. This has been the case for the last century, and without a fundamental change in our policy, will almost certainly continue to be the case. A land tax would be the silver bullet here-- it would align the incentives for landowners to listen to rises and falls in demand.
Mz 10y ago
I agree 100% that we should get rid of this deduction. I owned a 3 bedroom, 1 bath house in Manhattan, KS (an affordable part of the country). I never qualified for this deduction. The house was too cheap and the interest on the mortgage was too low. I was solidly middle class. This deduction benefits people spending substantial amounts on mortgage interest, thus it mostly benefits people buying McMansions (or actual mansions). In theory, middle class individuals in large cities are helped to qualify for homes because housing prices are so steep in the big city. In practice, it encourages "house inflation" where The Haves buy and build bigger and bigger houses and The Have Nots are piled up in rentals like cord wood or out in the street. If you can afford a house at all, this deduction actively encourages you to buy as much house as possible. It deepens the divide between The Haves and The Have Nots, thereby shrinking the middle class, not helping it. It helps ensure that you are either rich or poor in this country, not middle class.
- ArkyBeagle 10y ago
  I share your experience - I lived in both Texas and Florida in modest houses, and I think we could take the MID only once. It's getting to where it's not that clear that a McMansion is a "have" thing, especially if it take maxing out the mortgage. The real difference between "haves" and "have nots" is their credit rating. In places, the premium for rental may approach 100% of the payment if the same owner occupied the same house in a 20% down mortgage. But at the same time, people will max the mortgage out, so selling a 3-1 in Manhattan, Ks may be a very real challenge.
donretag 10y ago
Almost every time that something is subsidized, it will go up in price. A person's marginal propensity to consume means that if a deduction leads to money being saved, that money will actually be put toward the same product. But instead of bigger houses, we get the same house, just priced higher. Housing prices will be lower without the deduction, actually helping first time buyers more since the down payment will be more achievable. Alas, eliminating the deduction will never happen.
- dragonwriter 10y ago
  > But instead of bigger houses, we get the same house, just priced higher. This seems to assume a monopoly supplier charging monopoly rents, but is an untenable conclusion if housing is supplied in a competitive market. (It also neglects the fact that its not a flat subsidy, but one where the subsidy rate is positively correlated with income, so that -- within the limits of the deduction -- higher income earners get a higher subsidy rate, and thus the spread in buying power between them and lower-income earners is increased by the existence of the deduction, which even in a monopoly-supply situation would mean that the effect across the market was not "everyone gets the same houses as they would without the subsidy, just at higher prices".)
  - bufordsharkley 10y ago
    > but is an untenable conclusion if housing is supplied in a competitive market Housing is not a very competitive market. Entitlements (whoever first claims land can generally hold onto it) and policy (predominantly zoning), leads housing stock to be fairly inelastic to demand, and those supplying housing tend to be price-takers.
  - aab0 10y ago
    Land is fixed, so the greater ability to pay from the subsidy simply increases the 'rent' earned by landowners. To a great extent, one gets the same house on the same land, but priced higher.
    - dragonwriter 10y ago
thebigspacefuck 10y ago
I bought my first house and only made 4 payments which brought me over the standard deduction. I only put 5% down though and I live in a more expensive area than most.
thebigspacefuck 10y ago
I bought my first house and only made 4 payments which brought me over the standard deduction. I only put 5% down though and I live in a more expensive area than most.
tzs 10y ago
> Countries including Iceland, Luxembourg, and Switzerland, in fact, tax homeowners for “imputed rent”: the amount of income homeowners would earn if they rented out (rather than lived in) their home. Do homeowners in those countries also get imputed deductions for whatever things people who are actually running rental businesses get to deduct?

44 points by tnorthcutt 10y ago

> The largest tax break relates to health care: it makes the premiums paid by companies that offer health insurance exempt from payroll taxes. We really should start with that one. If anything, replace it with an individual deduction. It'll be a double-whammy. Get rid of this bullshit subsidy for large corporations and at the same time level the playing field for small businesses and individuals trying to get coverage.

nickff 10y ago
The health insurance exemption only helps the healthcare industry; without this exemption, people would rather be paid cash than get expensive extra healthcare benefits. People would probably rather buy their own health insurance than have an employer choose it, and most employers would rather offload the trouble of managing health insurance (as many have healthcare departments, which is not their core competency). Unfortunately the Affordable Care Act (A.K.A. ACA, Obamacare) cemented employer-purchased healthcare into place with the employer mandate.
- lotsofpulp 10y ago
  I think it's also possible that a large employer being able to offer health insurance much more cheaply per employee than a small employer can gives the large employer that much more advantage over the small one for no reason.
  - nickff 10y ago
    That is a very good point, and I have never looked at it that way. Unfortunately, this is exactly what we should expect, as governments usually consult large organizations for feedback, and small (or as-yet unformed) organizations are put at a great disadvantage.
  - venomsnake 10y ago
    And it is a way to a job serfdom - the cost of unemployment is greater. And - is anything worth risking my family health plans for? Employer provided insurance should stop existing.
- stanleydrew 10y ago
  The ACA was directionally correct in terms of the individual mandate though, and hard enough to pass as it was. I would expect with a Hillary presidency we'll see more progress made towards separating employment and healthcare.
  - koolba 10y ago
    > The ACA was directionally correct in terms of the individual mandate though, and hard enough to pass as it was. The ACA was a cop out. If you're not going to go to either single payer or at least include a public option (i.e. buy into the equivalent of public Medicare) then it's all a way to force people to send money to insurance companies. The Dems had a supermajority in the senate but either didn't have the balls to do the right thing, or, more likely, just wanted to suck up to their corporate interests. > I would expect with a Hillary presidency we'll see more progress made towards separating employment and healthcare. Ha! I'm sure she'll be just as tough on Wall street too.
lotsofpulp 10y ago
It really shows how corrupt the system is. If you buy insurance yourself on the exchange, then you pay with post tax dollars. If you happen to work for a large company whose population is obviously more desirable to insure, then you get a huge discount on health insurance. If you're a small employer employing people on the lower end of the economic scale, then you pay through the roof if you want to buy a group health plan because your population is probably not too desirable, and if you try to reimburse your employees for their own individually purchased health insurance (because you don't have time to deal with all the stupid health insurance laws like COBRA and stuff), then you also pay with post tax dollars. Using the tax code as a political bargaining chip is a time honored tradition that, unfortunately, isn't going away soon.
- ceejayoz 10y ago
  > If you buy insurance yourself on the exchange, then you pay with post tax dollars. It's deductible at tax time, though.
  - ams6110 10y ago
    Can you pay the premium out of an HSA? That's pre-tax.
    - ceejayoz 10y ago
      To my knowledge you can only do that if it's COBRA or a few other fairly unusual situations.
    - chiph 10y ago
      My reading of IRS publication 502 is that you can pay COBRA premiums, medicare, and premiums if you are on unemployment, but not otherwise.
    - koolba 10y ago
      No an HSA is for out of pocket expenses. Monthly premiums cannot be paid from it.
  - 10y ago
fweespeech 10y ago
> We really should start with that one. If anything, replace it with an individual deduction. It'll be a double-whammy. Get rid of this bullshit subsidy for large corporations and at the same time level the playing field for small businesses and individuals trying to get coverage. We really should just drop both and replace it with an increase in the standard deduction for individuals.
- maxerickson 10y ago
  Given that deductions come out of top bracket income, it might be more fair to adjust the brackets and reduce the standard deduction. Of course it all depends on what the hell fair means. The people with income in higher brackets are still paying more taxes after deductions.
  - fweespeech 10y ago
    I'd say the poorer you are, the more you need the tax deductions honestly.
ArkyBeagle 10y ago
It really does not matter if they're tax exempt at payroll disbursement time or as a deduction on filings. The trouble with employer-based health care is much more about the fact that employers get a volume discount that individuals or small businesses do not. Even then when Ive worked W2 contract, I've had health care offered by the contracting company for reasonable amounts.

matt_wulfeck 10y ago

> It first appeared in 1861, born out of a necessity for Civil War funding, and in 1913, Congress made the income tax a permanent part of American life. And federal income tax should again be eliminated. The federal government should get fed from the hands of the state, not the other way around. Having all of the money flow down from the top is helping to create this mess we're in now. The one that controls the purse holds the real power. Federal income tax is consolidating that power at the top.

ubernostrum 10y ago
The Civil War, and the period preceding it, sort of put the lie to any attempt to idealize the states as somehow a more pure, less-corrupt or less-oppressive place to put government power.
- ArkyBeagle 10y ago
  Lincoln put it best - half-slave and half-free won't work. They were legally immiscible ( unmixable ). The abuse of "states rights" in text by Southrun Lost Causers is invalid and should be discarded - the Fugitive Slave Act and the Dred Scott decision clearly showed that they wanted Federal enforcement of that "state's right". You have the emerging legal unsustainability of this, coupled with slaves being the only asset of value left in the South. So, war, war.
Mz 10y ago
If you read the history, the form of government the US has failed and failed and failed while trying it the way you describe. The US was on the verge of collapse when it re-arranged things a bit and handed over more power to the federal government. That's why the country still exists. In its earliest days, it was in danger of collapse just like every other state that had attempted the same kind of organization. If we take away the federal government power to a) raise money and b) keep a standing army we will likely see this country destroyed in short order, whether from within or from without. Quite a few countries would be thrilled to pieces if we hamstrung our federal government so they could invade and do as they please.

danhak 10y ago

Unfortunately the mortgage interest deduction is a major third rail in U.S. politics and it is probably here to stay. This article is 100% spot on though--it is a completely regressive policy and privileges those with enough capital to purchase real estate at the expense of those who have no choice but to rent.

underbluewaters 10y ago
Yep. While in the abstract I would support eliminating it, now that I've finally purchased a home I'm against any changes to the status quo. The very economics of this huge purchase are only made rational by that deduction.
- maxerickson 10y ago
  What about phasing it out over 20 years? The deduction related to the purchase decision you just made will be a lot smaller by then and you would know what the new rules were for future decisions.
- hx87 10y ago
  What about implementing an equivalent deduction for renters? I know renters theoretically benefit from their landlord's deduction, but that only applies if the landlord is carrying a mortgage, and tax benefits for landlords have a dubious record of filtering down to renters.
rwmj 10y ago
The equivalent in the UK (MIRAS - https://en.wikipedia.org/wiki/Mortgage_interest_relief_at_source https://en.wikipedia.org/wiki/Mortgage_interest_relief_at_so...) was abolished in 2000 without too much fuss.
DrScump 10y ago
Only if you look at it as media moguls try to sell the concept. As implemented, much of the benefit goes to the wealthy with both pricey primary homes and with secondary homes. If you instead limited it to primary homes only and only up to, say, property prices 1.5 times the median single family home price for the area, you'd recover a majority of that deduction right off the bat without harming lower- or middle-income home ownership or causing a dive in property prices or lose the stability benefits of home ownership.

matt_wulfeck 10y ago

> the mortgage interest tax deduction, which, at an annual estimated cost of $77 to $100 billion... Oh please. What a puny number that benefits such an enormous amount of regular people. The cost of war in Iraq is estimated at $12 billion a month[O]. Eliminating this deduction wouldn't even buy us another senseless and irresponsible war! [0] http://www.businessinsider.com/the-iraq-war-by-numbers-2014-6 http://www.businessinsider.com/the-iraq-war-by-numbers-2014-...

hx87 10y ago
If it's a puny number, and enormous number of people benefit from it, and the benefit is 100% financial (as in this case), then each person isn't benefiting all that much from it.
breischl 10y ago
>>What a puny number that benefits such an enormous amount of regular people. Well, I guess that depends on your definitions of "puny" and "regular". Since 75% of the benefit goes to people making over $100k/year, that must be your definition of "regular people." Which isn't really statistically defensible, but might be your personal experience. I'm not sure $100bn really counts as "puny" even to the Feds, though. Granted 3% of last years' revenues isn't a huge number, but neither is it a rounding error. Personally, I think it's absolutely silly to forego tax dollars to encourage people to go into debt. Not that I'm above taking advantage of it every year, and probably deriving more benefit from it than most. I'm still trying to figure out what any of this has to do with the Iraq war, though.
- sokoloff 10y ago
  > 75% of the benefit goes to people making over $100k/year It's much closer to households making over $100K/yr than people making that.
JauntTrooper 10y ago
$77-$100B is equal to $618 - $800 per US household.

Analemma_ 10y ago

The first comment in that article points out what's really the cherry on the stupidity cake: it's not even that the mortgage interest deduction is small-but-at-least-something for middle-class families. For a lot of them it's literally zero, because it's often less than the standard deduction. Even leaving aside the political class's counterproductive obsession with homeownership, the insanity here is of the masses passionately supporting a $100 billion annual expense that benefits them not one cent. Just another one of those things that makes me fantasize about a rationalist dictatorship, before I sigh and return to the real world.

ams6110 10y ago
The mortgage interest deduction is the thing that makes it possible to itemize for most people. Then you also get to deduct your property taxes, your state income taxes, charitable contributions, other misc stuff. Any of those things separately is often less than the standard deduction. But all together they are more, and the mortgage interest is generally the biggest and the one that pushes it over the top.
- breischl 10y ago
  Fine, but then it's only helping to the extent that the taxpayer is over the standard deduction. If their mortgage interest was $1000, but they end up just $1 over the standard deduction then technically it helped - but only by 15 cents (depending on their marginal rate).
sokoloff 10y ago
That depends quite a bit on your state income tax and real estate taxes. In MA, it's quite easy for those to exceed (or near) the standard deduction amount, meaning the mortgage interest deduction will push you over into itemizing. A single person earning $60K and paying $4K in real estate taxes has already exceeded the standard deduction amount.

deleted 10y ago

[deleted]

salimmadjd 10y ago

Isn't this just an indirect subsidy for banks? Basically, the government partially pays for the interest rate the bank charge on your mortgage.

acbabis 10y ago

> For this reason, organizations like the Congressional Budget Office treat tax breaks and government spending as essentially equivalent. This seems weird. Collecting and spending money has overhead and externalities (enforcement for example), while not taxing in the first place does not.

dak1 10y ago
There's definitely an overhead to tax breaks. There's a difference between simplifying the tax code, which would theoretically reduce overhead, and providing an itemized tax break, which actually increases complexity (and yes, there's enforcement of that tax break too). Treating a tax break like government spending seems completely rational.
acbabis 10y ago
Now that I think about it a little more, this seems like a red herring. Just because the budgeting office says two numbers are the same on paper, doesn't mean anything about the efficacy of the policy, for or against.
- deleted 10y ago
  [deleted]
boxy310 10y ago
"Not taxing" also includes overhead for ensuring that people aren't abusing the deduction or exemption, or the societal/political costs involved in the perception that select few get a free pass (i.e. overshore tax shelters).
guyzero 10y ago
Those externalities are already being paid.
hx87 10y ago
Even if a tax break is simply lowering a marginal rate (which it rarely is), it's not like enforcing a 36% tax is less costly than enforcing a 40% one.

tormeh 10y ago

Housing prices are whatever people are able to pay. If everyone's able to take up a bigger loan thanks to mortgage interest deduction, then house prices will rise to meet the increased demand. End result: We have to effectively pay the same (bigger loan but with tax deduction), but because everyone takes up bigger loans the national economy becomes more brittle. Yay? It's just the government pushing money into the construction industry, which really is the only beneficient, and it's all disguised as a gift to the middle class. It's just dumb.

dragonwriter 10y ago
> Housing prices are whatever people are able to pay. I fail to see the justification for concluding that housing prices are set by demand alone, not the usual interaction of supply of demand.
- tormeh 10y ago
  The short-term supply of housing is fixed. Yes, there will be an increase in renovation of houses due to larger loans being affordable, but most of our housing costs are the cost of centrally located floorspace anyway, whose supply moves really slowly. Supply of central floorspace increases due to mass transit buildout, city expansion, and building height, only the last of which depends on average ability to pay for housing. Building height is usually restricted by zoning, in which case average ability to pay doesn't influence supply at all.
  - dragonwriter 10y ago
    > The short-term supply of housing is fixed. Sure, so the immediate-term effect of a change in policy on the deduction would be what you would expect with a fixed supply; but that's hardly the only, or most important, effect to consider with a long-term policy.
    - bufordsharkley 10y ago
      Land-use policy makes it far more attractive to resist growth, enact restrictive zoning laws, and engage in speculation, rather than listen to the signals of demand. This has been the case for the last century, and without a fundamental change in our policy, will almost certainly continue to be the case. A land tax would be the silver bullet here-- it would align the incentives for landowners to listen to rises and falls in demand.

Mz 10y ago

I agree 100% that we should get rid of this deduction. I owned a 3 bedroom, 1 bath house in Manhattan, KS (an affordable part of the country). I never qualified for this deduction. The house was too cheap and the interest on the mortgage was too low. I was solidly middle class. This deduction benefits people spending substantial amounts on mortgage interest, thus it mostly benefits people buying McMansions (or actual mansions). In theory, middle class individuals in large cities are helped to qualify for homes because housing prices are so steep in the big city. In practice, it encourages "house inflation" where The Haves buy and build bigger and bigger houses and The Have Nots are piled up in rentals like cord wood or out in the street. If you can afford a house at all, this deduction actively encourages you to buy as much house as possible. It deepens the divide between The Haves and The Have Nots, thereby shrinking the middle class, not helping it. It helps ensure that you are either rich or poor in this country, not middle class.

ArkyBeagle 10y ago
I share your experience - I lived in both Texas and Florida in modest houses, and I think we could take the MID only once. It's getting to where it's not that clear that a McMansion is a "have" thing, especially if it take maxing out the mortgage. The real difference between "haves" and "have nots" is their credit rating. In places, the premium for rental may approach 100% of the payment if the same owner occupied the same house in a 20% down mortgage. But at the same time, people will max the mortgage out, so selling a 3-1 in Manhattan, Ks may be a very real challenge.

donretag 10y ago

Almost every time that something is subsidized, it will go up in price. A person's marginal propensity to consume means that if a deduction leads to money being saved, that money will actually be put toward the same product. But instead of bigger houses, we get the same house, just priced higher. Housing prices will be lower without the deduction, actually helping first time buyers more since the down payment will be more achievable. Alas, eliminating the deduction will never happen.

dragonwriter 10y ago
> But instead of bigger houses, we get the same house, just priced higher. This seems to assume a monopoly supplier charging monopoly rents, but is an untenable conclusion if housing is supplied in a competitive market. (It also neglects the fact that its not a flat subsidy, but one where the subsidy rate is positively correlated with income, so that -- within the limits of the deduction -- higher income earners get a higher subsidy rate, and thus the spread in buying power between them and lower-income earners is increased by the existence of the deduction, which even in a monopoly-supply situation would mean that the effect across the market was not "everyone gets the same houses as they would without the subsidy, just at higher prices".)
- bufordsharkley 10y ago
  > but is an untenable conclusion if housing is supplied in a competitive market Housing is not a very competitive market. Entitlements (whoever first claims land can generally hold onto it) and policy (predominantly zoning), leads housing stock to be fairly inelastic to demand, and those supplying housing tend to be price-takers.
- aab0 10y ago
  Land is fixed, so the greater ability to pay from the subsidy simply increases the 'rent' earned by landowners. To a great extent, one gets the same house on the same land, but priced higher.
  - dragonwriter 10y ago

thebigspacefuck 10y ago

I bought my first house and only made 4 payments which brought me over the standard deduction. I only put 5% down though and I live in a more expensive area than most.

thebigspacefuck 10y ago

I bought my first house and only made 4 payments which brought me over the standard deduction. I only put 5% down though and I live in a more expensive area than most.

tzs 10y ago

> Countries including Iceland, Luxembourg, and Switzerland, in fact, tax homeowners for “imputed rent”: the amount of income homeowners would earn if they rented out (rather than lived in) their home. Do homeowners in those countries also get imputed deductions for whatever things people who are actually running rental businesses get to deduct?