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Two questions: ---- 1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not? ---- 2. How do you feel about the

• ghouse 9y ago
  Two separate issues -- State and Local Taxes (SALT) are income, property and other taxes collected at the non-federal level. They have been deductible since the creation of the federal income tax. In part, because the federal government recognizes that resources are more efficiently allocated locally. And that is one reason why higher taxed states pay more into the federal government's budget than they receive in benefits. [1] The Mortgage Interest Deduction is simply a wealth transfer from people who don't own homes to people who do own homes. [1] https://www.theatlantic.com/business/archive/2014/05/which-states-are-givers-and-which-are-takers/361668/ https://www.theatlantic.com/business/archive/2014/05/which-s...
  • dv_dt 9y ago
    The mortgage interest deduction is a way for home owner/occupants to get cost parity vs landlords who could own the exact same property at a lower cost because the interest of a loan is a business expense. Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms.
    • dragonwriter 9y ago
      > Under the proposed tax cut, it could very well be cheaper for two neighbors to own each others houses and charge one another rent (collected via pass-thru corporations even) than it would be for them to own and live in their own houses with the same mortgage terms. Morw to the point, normal homeowners who have trouble with the setup cost of such an arrangement would pay higher taxes to subsidize the rich, who do not have trouble with the cost of setting up such a tax avoidance scheme.
  • dragonwriter 9y ago
    > They have been deductible since the creation of the federal income tax. In part, because the federal government recognizes that resources are more efficiently allocated locally. Perhaps more to the point, not deducting them mathematically creates structural incentives for inefficient local decisions.
• closeparen 9y ago
  Because they are vastly wealthier to afford a house that costs ~3x the median?
  • vostok 9y ago
    How do you know that the second family is vastly wealthier? Either way, if you want to tax wealthy people then you can introduce a wealth tax.
  • froindt 9y ago
    You got it mixed around. Income is equal for both parties, but the family in the 300k house pays more in taxes because they deducted less interest from their income.
    • vostok 9y ago
      I assume this was a typo, but to clarify the family with the $300k mortgage pays more in taxes.
      • froindt 9y ago
        Gah, I had a typo while explaining a mistaken interpretation. Thanks for point that out!
      • deleted 9y ago
        [deleted]
• maxerickson 9y ago
  The right answer is to get rid of the deduction. It's regressive (as you point out) and reflected in the costs of housing anyway (people choose the monthly payment they can afford not the house they can afford).
  • smsm42 9y ago
    > people choose the monthly payment they can afford not the house they can afford It's the same thing - the house you can afford is one for which you can afford monthly payments. Unless you buy cash, which on the average almost nobody does for low-mid-range market.
    • maxerickson 9y ago
      My phrasing is in-artful. The point is buyers make a decision about what payment to make and the seller gets the benefit of the tax credit.
• munk-a 9y ago
  You're missing one even more heinous point, renters. A family paying off their 300k mortgage is getting a decrease in taxes owed while being subsidized for paying into an asset. The renting family is not being subsidized and they will never again see the money they are spending on rent. In most areas this is particularly twisted as mortgages will run beneath rental costs for the same standard of living. So the only real difference is that renters don't have to deal with the costs of damage to their asset... no money out of pocket for repainting or replacing appliances or structural issues and if their building slides into the sea they aren't out the value of the property. Often times this also gets a bonus racist angle since minorities have a harder time securing a mortgage which traps them into overpaying for housing while struggling to save to pay less for their housing.
  • smsm42 9y ago
    > The renting family is not being subsidized Guess what happens to rent if cost of ownership rises due to interest not being deductible?
    • refurb 9y ago
      My guess is housing prices fall and rents follow?
      • smsm42 9y ago
        Nope, at least not in the short term. In the short term, house price is locked for the current owner, and usually by their payments to the mortgage holder. If the expenses rise, so do the prices. And since this will happen on the whole market, the price rise would not be substantially constrained by the competition. On the long term, this could depress the housing market and thus lead to lower prices. That would depend on the overall market state - in markets with housing shortage that probably won't happen anyway.
        • refurb 9y ago
          If the expenses rise, so do the prices. Not sure I understand. If expenses rise, housing prices fall, not increase. And yes, a landlord might say "my expenses went up so rent will go up as well". However, the market sets prices, not landlords. He might raise the price, the tenant leaves and his place sits empty. There are plenty of people out there losing money as landlords because their rents are higher than what people will pay.
• smsm42 9y ago
  > 1. What about the property tax deduction? Why are property taxes deductible, but income taxes are not? There's no objective reason why it should be. But since deductions are largely arbitrary policy instruments anyway - because property tax deduction encourages and makes easier home ownership (at least this is the theory) and the government wants more home ownership. State tax deduction does not really have such goal (unless you see moving people to high-tax states as a goal, but I don't think federal government identifies such goal). > 2. How do you feel about the mortgage interest deduction? A very similar question could be asked. Same as above. Only much bigger - given 20% down mortgages, mortgage interest - especially for new mortgages on standard equal-payment plan - is very substantial. So, tax deduction makes owning home easier - and, on the reverse, removing this deduction would seriously hurt current mortgage owners and discourage new ones. The difference here is that with property-related taxes there is a policy goal linked to it, and also long-term choice individuals make based on this policy, which would make them very upset if the policy changes. With state taxes, there's no real policy goal (for federal government at least) and most people don't choose state to live it because of state tax deduction.
  • vostok 9y ago
    > The difference here is that with property-related taxes there is a policy goal linked to it, and also long-term choice individuals make based on this policy, which would make them very upset if the policy changes. Wouldn't you agree that choosing to live in particular state is just as much of a long term decision as choosing to live in a particular house?
    • smsm42 9y ago
      Yes, but how much state tax deduction figures in that choice? I wouldn't say it's a lot. Presence and absence of state income tax - maybe, but presence of deduction - not very likely. And of course, if the state wanted to compete on that metric, they could easily lower the taxes, but I haven't seen many high-tax ones to be willing to.
      • vostok 9y ago