4 ms·

On #2, the role tax deductibility of interest plays is often overlooked IMHO. The mortgage interest tax deduction (and all deductions of interest) are a massive

by navi0 4y ago

On #2, the role tax deductibility of interest plays is often overlooked IMHO. The mortgage interest tax deduction (and all deductions of interest) are a massive subsidy to relatively wealthy members of society and which serves to encourage the use of debt to increase the nominal value of assets more generally, not just property. The way out is a gradual reduction in the amount of. Interest allowed to be entered (e.g., 1-2% reduction per year) to avoid spooking markets.

xnx 4y ago
I believe the Tax Cuts and Jobs Act ("TCJA") of 2017 raised the standard deduction so much that there's not nearly as much tax benefit to carrying a mortgage.
- reducesuffering 4y ago
  Standard deduction for singles 2022 was ~$13k. For itemizing, you are able to deduct $750k federally. At 5% interest, that's $37.5k, and now you can itemize SALT for $10k, and some others like registration. We'll call it $48k deduction. (CA you can deduct even more) That's an extra $35k deduction, at typical 40% marginal tax rates, that saves an individual $14k/yr in their bank account, almost $1.2k a month. Yes, the benefit is less for married, because standard deduction becomes $26k so marginal deduction is an extra $22k, $9k/yr in the bank, $750/mth.
trashtester 4y ago
Would this apply to businesses too, or just individuals? If businesses are not allowed to deduct interest expenses, that going to strongly constrain how much they will be willing to invest. And if business ARE allowed to deduct interest expenses, but individuals not, then rich people will just have their company own their house, and rent it from themselves (or some similar adaptation). In particular, for real estate, if loans become more expensive, fewer people will want to build housing, making the market even more constrained. (Now, I do see reasons for making lending more expensive, but that would be for financial stability reasons, not housing.) To "solve" housing, I think the main approach should be to encourage the supply side. Make it easier and cheaper to build, and harder for local communities to enforce their NIMBY inclinations. Within reason, though, because if take to the other extreme, you may end up with an oversupply of housing in many areas, which can lead to slums forming.
- navi0 4y ago
  Yes, for the reason you describe, it would also apply to businesses. It would likely help smooth out some of the market excesses and temper some of the irrational exuberance known to occur. A lot of “investment” is done by zombie companies buying their own stock or floating from one low interest loan to another to fund operations while deducting interest expenses along the way. Yes, there could be a hit to overall investment, and it could be argued to set a lower bound of allowing deductions for up to 50% of interest paid or something.

by navi0 4y ago

xnx 4y ago

I believe the Tax Cuts and Jobs Act ("TCJA") of 2017 raised the standard deduction so much that there's not nearly as much tax benefit to carrying a mortgage.

reducesuffering 4y ago
Standard deduction for singles 2022 was ~$13k. For itemizing, you are able to deduct $750k federally. At 5% interest, that's $37.5k, and now you can itemize SALT for $10k, and some others like registration. We'll call it $48k deduction. (CA you can deduct even more) That's an extra $35k deduction, at typical 40% marginal tax rates, that saves an individual $14k/yr in their bank account, almost $1.2k a month. Yes, the benefit is less for married, because standard deduction becomes $26k so marginal deduction is an extra $22k, $9k/yr in the bank, $750/mth.

trashtester 4y ago

Would this apply to businesses too, or just individuals? If businesses are not allowed to deduct interest expenses, that going to strongly constrain how much they will be willing to invest. And if business ARE allowed to deduct interest expenses, but individuals not, then rich people will just have their company own their house, and rent it from themselves (or some similar adaptation). In particular, for real estate, if loans become more expensive, fewer people will want to build housing, making the market even more constrained. (Now, I do see reasons for making lending more expensive, but that would be for financial stability reasons, not housing.) To "solve" housing, I think the main approach should be to encourage the supply side. Make it easier and cheaper to build, and harder for local communities to enforce their NIMBY inclinations. Within reason, though, because if take to the other extreme, you may end up with an oversupply of housing in many areas, which can lead to slums forming.

navi0 4y ago
Yes, for the reason you describe, it would also apply to businesses. It would likely help smooth out some of the market excesses and temper some of the irrational exuberance known to occur. A lot of “investment” is done by zombie companies buying their own stock or floating from one low interest loan to another to fund operations while deducting interest expenses along the way. Yes, there could be a hit to overall investment, and it could be argued to set a lower bound of allowing deductions for up to 50% of interest paid or something.