5 ms·

Can we please get rid of the mortgage tax deduction now?

by saosebastiao 13y ago

mynegation 13y ago
Why? I know many Canadians would kill for mortgage interest tax deduction.
- jfb 13y ago
  From my perspective, it's a huge giveaway to people who are already doing fine, which offends me, morally; and it distorts the housing market in dangerous and destructive ways. Aside from employer sponsored health insurance, it's the most pernicious bit of Federal social engineering.
  - mynegation 13y ago
    Thank you for your answer. On one hand, corporations get tax breaks on debt interest, even in Canada, so why should not people? On the other hand I believe that corporations are way more rational than people in taking on debt. For most people buying a house is not an investment, but very emotional decision, and I see how tax incentive may put more steam into bubbles.
    - gaadd33 13y ago
      But personal bankruptcy still carries somewhat of a social stigma whereas corporate bankruptcy is part of a good business plan.
    - drpgq 13y ago
      In Canada you get an exemption for capital gains on your principal residence, which is a pretty big tax break already.
  - AnthonyMouse 13y ago
    >From my perspective, it's a huge giveaway to people who are already doing fine, which offends me, morally If it makes you feel any better, the home owner in reality gets practically none of the money. Since everybody gets the deduction it just causes everyone to have to bid that much more in order to be the highest offer. And the higher prices don't really spur new home construction to compensate as you might expect, because the areas with high demand are largely urban areas with minimal available undeveloped land and zoning regulations that often prohibit the construction of higher density housing that would relieve pricing pressure. The result is that the big winners are banks, which end up making larger loans and collecting that much more government-subsidized interest.
    - scarmig 13y ago
      Oh, so really it only goes into bankers' pockets? I feel much better now.
    - X-Istence 13y ago
      I didn't even take this into account when purchasing my home ... I made sure to buy within my means regardless of possible tax deductions I get to maybe make in the future...
      - apendleton 13y ago
        Whether you did or didn't individually, the price of housing overall reflects the fact that people generally do. It's outside of your hands.
- huherto 13y ago
  Because it is good for the individuals that get the break, but in sum is bad for eveybody.
- saosebastiao 13y ago
  1) It is a giveaway to wealthier households with plentiful credit, and 2) costs us $100B in lost revenue.
- Caerus 13y ago
  In addition to what others have posted, it only benefits those who have a mortgage when the deduction is passed. For everyone else it effectively raises the price of the house by the amount of the deduction.
- scarmig 13y ago
  It also inflates house prices [1]. If people get handouts to purchase houses, they're going to be willing to bid higher than they otherwise would. Also, I don't see why we as a society should want to subsidize loans that take 30 years to pay off, which are most used by the relatively well off anyways. It effectively enslaves people, or at least radically reduces the space for choice and entrepreneurial activity. Similar thing happens with student loans. [1] This even includes, partially, rental prices. If the market rate for a dwelling that's to be rented is driven higher, those costs are passed on in large part to the renter, especially in areas where housing elasticity is low (i.e. it's relatively difficult to add more units or houses e.g. SF, NYC). It's so bad that I really have a hard time figuring out who wins from the deduction. Except for the banks, of course.
  - AnthonyMouse 13y ago
    >It's so bad that I really have a hard time figuring out who wins from the deduction. Except for the banks, of course. It's really pretty much just the banks. You get some other movement around the edges though. For example, it promotes urban sprawl, because the higher home prices make more new home construction in the suburbs cost effective, which can be to the benefit of construction companies. And people who move from areas with higher housing prices to areas with lower housing prices benefit to the detriment of those who do the opposite, because the windfall they get when they sell their home is larger than it would be otherwise -- which again promotes urban sprawl, because it increases the financial incentive for existing urbanites to move to the suburbs, and creates a similar effect for renters because higher real estate prices mean higher rents but the renters don't get the deduction so they have to move farther away from the cities to find affordable rental properties.
    - refurb 13y ago
      It's not just the banks. The money that banks lend isn't their own, its investors. Sure they get a cut through interest rate differentials and origination fees, but most mortgages get purchased by investors.
      - 13y ago
newman314 13y ago
I would be for getting rid of the mortgage tax deduction as long as there is some way of giving current home owners a one time chance of making them "whole" or some portion of. In an effort not to penalize one group, it should not accidentally cause issues for another. I.e. I already own a comparatively expensive home because of what the market was, home prices would inevitably drop without the mortgage tax deduction but I don't want to be caught in a negative value situation.
- jlgreco 13y ago
  Grandfather in current mortgages?
  - jmaygarden 13y ago
    That wouldn't help with housing prices. Demand is still reduced when grandfathered owners try to sell. That would definitely make it harder to move for a new job.
    - jlgreco 13y ago
      Well, in return for them finding it harder to move to a new job they would be getting a nice tax benefit.. seems approximately fair enough to me.
      - gte910h 13y ago
        Howso?
        jlgreco 13y ago
        I don't understand your confusion. If they want to keep their tax benefit, they pay for it by having reduced labor mobility. If they are okay with giving up their tax benefit, they get their labor mobility back. Why should they have both, at the expense of others?
mark242 13y ago
Doing that would absolutely wreck the economy. Like, black swan systemic failure wreck. The mortgage tax deduction provides a huge amount of what turns out to be disposable income for the middle and lower-middle class. Take that away, and the ripples in the economy would be massive. Similarly, all current house prices would be trimmed by at least 20%, and most likely more than that due to how the tax deduction is able to help with principal payments. If we have another 20% trim of house prices across the board, you're looking at -- at the very least -- a return of the great recession. As mortgage rates are already at their lowest point, there's not much further down they can go to compensate for the sudden lack of demand that will occur. Spending money gone. House price chopped in half, sending more people underwater. Mortgage interest rates nowhere to go. That's a trifecta of disaster.
- krapht 13y ago
  You'd have to have a pretty sizeable home before you start itemizing for mortgage interest and not take the standard deduction. I disagree.
  - bethling 13y ago
    The standard deduction for a single filer is "only" $6,100. It doesn't take a very large mortgage to combine with real estate taxes and other potential deductions (State Income tax/Sales Tax) to move you out of the standard deduction category. When I've had a mortgage, I've never taken the standard deduction. When I've not had a mortgage, I've never itemized.
    - greenyoda 13y ago
      Especially in states with high state income taxes, like NY or CA.
  - gnoway 13y ago
    Not really, because you can take a sales tax deduction if you itemize. Sales tax deduction + mortgage interest deduction probably gets you over the hump. If you're in a state with property taxes you can deduct those as well when you itemize.
jpdoctor 13y ago
> Can we please get rid of the mortgage tax deduction now? It's welfare for the middle class, by another name. It ain't going away.
praxulus 13y ago
I don't mind the mortgage tax deduction, but it's only fair to add a similar deduction for renters. It should be a "shelter is a basic human need" deduction.
- gaius 13y ago
  You know, in Switzerland, if you own your home outright, the money you are not paying in mortgage is counted as income and taxed accordingly.
geebee 13y ago
I see a couple of problems with this: First - property taxes, depending on the state, are fairly high. In my case, this largely offsets the mortgage deduction - though not completely (maybe 75%). People talk about how the mortgage deduction is welfare for the middle class (and up), but there are also a lot of heavy taxes involved in owning property. Second - there's a difference between getting rid of a bad policy and never implementing it. If the mortgage deduction were a new proposal, I'd be opposed to it. Here's the problem - the government decided to "encourage" home ownership with a big deduction. New buyers factored it into what they could afford, and are now heavily dependent on it. Should the government now say "oh, on second thought, no, we shouldn't have encouraged you to do this after all, so we'll be pulling that rug out from under you now"? It would be very destructive. To me, this is a good illustration of how difficult it can be to remove a bad policy once it becomes very entrenched. Slowly phasing it out could work. Alternatively, removing the mortgage deduction and property tax at the same time would probably reduce the impact (if taxing discourages ownership, then we'd remove the encouragement and discouragement at the same time). Problem with this is that property taxes fund local government and the mortgage deduction is a federal deduction.

Can we please get rid of the mortgage tax deduction now?

mynegation 13y ago

Why? I know many Canadians would kill for mortgage interest tax deduction.

jfb 13y ago
From my perspective, it's a huge giveaway to people who are already doing fine, which offends me, morally; and it distorts the housing market in dangerous and destructive ways. Aside from employer sponsored health insurance, it's the most pernicious bit of Federal social engineering.
- mynegation 13y ago
  Thank you for your answer. On one hand, corporations get tax breaks on debt interest, even in Canada, so why should not people? On the other hand I believe that corporations are way more rational than people in taking on debt. For most people buying a house is not an investment, but very emotional decision, and I see how tax incentive may put more steam into bubbles.
  - gaadd33 13y ago
    But personal bankruptcy still carries somewhat of a social stigma whereas corporate bankruptcy is part of a good business plan.
  - drpgq 13y ago
    In Canada you get an exemption for capital gains on your principal residence, which is a pretty big tax break already.
- AnthonyMouse 13y ago
  >From my perspective, it's a huge giveaway to people who are already doing fine, which offends me, morally If it makes you feel any better, the home owner in reality gets practically none of the money. Since everybody gets the deduction it just causes everyone to have to bid that much more in order to be the highest offer. And the higher prices don't really spur new home construction to compensate as you might expect, because the areas with high demand are largely urban areas with minimal available undeveloped land and zoning regulations that often prohibit the construction of higher density housing that would relieve pricing pressure. The result is that the big winners are banks, which end up making larger loans and collecting that much more government-subsidized interest.
  - scarmig 13y ago
    Oh, so really it only goes into bankers' pockets? I feel much better now.
  - X-Istence 13y ago
    I didn't even take this into account when purchasing my home ... I made sure to buy within my means regardless of possible tax deductions I get to maybe make in the future...
    - apendleton 13y ago
      Whether you did or didn't individually, the price of housing overall reflects the fact that people generally do. It's outside of your hands.
huherto 13y ago
Because it is good for the individuals that get the break, but in sum is bad for eveybody.
saosebastiao 13y ago
1) It is a giveaway to wealthier households with plentiful credit, and 2) costs us $100B in lost revenue.
Caerus 13y ago
In addition to what others have posted, it only benefits those who have a mortgage when the deduction is passed. For everyone else it effectively raises the price of the house by the amount of the deduction.
scarmig 13y ago
It also inflates house prices [1]. If people get handouts to purchase houses, they're going to be willing to bid higher than they otherwise would. Also, I don't see why we as a society should want to subsidize loans that take 30 years to pay off, which are most used by the relatively well off anyways. It effectively enslaves people, or at least radically reduces the space for choice and entrepreneurial activity. Similar thing happens with student loans. [1] This even includes, partially, rental prices. If the market rate for a dwelling that's to be rented is driven higher, those costs are passed on in large part to the renter, especially in areas where housing elasticity is low (i.e. it's relatively difficult to add more units or houses e.g. SF, NYC). It's so bad that I really have a hard time figuring out who wins from the deduction. Except for the banks, of course.
- AnthonyMouse 13y ago
  >It's so bad that I really have a hard time figuring out who wins from the deduction. Except for the banks, of course. It's really pretty much just the banks. You get some other movement around the edges though. For example, it promotes urban sprawl, because the higher home prices make more new home construction in the suburbs cost effective, which can be to the benefit of construction companies. And people who move from areas with higher housing prices to areas with lower housing prices benefit to the detriment of those who do the opposite, because the windfall they get when they sell their home is larger than it would be otherwise -- which again promotes urban sprawl, because it increases the financial incentive for existing urbanites to move to the suburbs, and creates a similar effect for renters because higher real estate prices mean higher rents but the renters don't get the deduction so they have to move farther away from the cities to find affordable rental properties.
  - refurb 13y ago
    It's not just the banks. The money that banks lend isn't their own, its investors. Sure they get a cut through interest rate differentials and origination fees, but most mortgages get purchased by investors.
    - 13y ago

newman314 13y ago

I would be for getting rid of the mortgage tax deduction as long as there is some way of giving current home owners a one time chance of making them "whole" or some portion of. In an effort not to penalize one group, it should not accidentally cause issues for another. I.e. I already own a comparatively expensive home because of what the market was, home prices would inevitably drop without the mortgage tax deduction but I don't want to be caught in a negative value situation.

jlgreco 13y ago
Grandfather in current mortgages?
- jmaygarden 13y ago
  That wouldn't help with housing prices. Demand is still reduced when grandfathered owners try to sell. That would definitely make it harder to move for a new job.
  - jlgreco 13y ago
    Well, in return for them finding it harder to move to a new job they would be getting a nice tax benefit.. seems approximately fair enough to me.
    - gte910h 13y ago
      Howso?
      - jlgreco 13y ago
        I don't understand your confusion. If they want to keep their tax benefit, they pay for it by having reduced labor mobility. If they are okay with giving up their tax benefit, they get their labor mobility back. Why should they have both, at the expense of others?

mark242 13y ago

Doing that would absolutely wreck the economy. Like, black swan systemic failure wreck. The mortgage tax deduction provides a huge amount of what turns out to be disposable income for the middle and lower-middle class. Take that away, and the ripples in the economy would be massive. Similarly, all current house prices would be trimmed by at least 20%, and most likely more than that due to how the tax deduction is able to help with principal payments. If we have another 20% trim of house prices across the board, you're looking at -- at the very least -- a return of the great recession. As mortgage rates are already at their lowest point, there's not much further down they can go to compensate for the sudden lack of demand that will occur. Spending money gone. House price chopped in half, sending more people underwater. Mortgage interest rates nowhere to go. That's a trifecta of disaster.

krapht 13y ago
You'd have to have a pretty sizeable home before you start itemizing for mortgage interest and not take the standard deduction. I disagree.
- bethling 13y ago
  The standard deduction for a single filer is "only" $6,100. It doesn't take a very large mortgage to combine with real estate taxes and other potential deductions (State Income tax/Sales Tax) to move you out of the standard deduction category. When I've had a mortgage, I've never taken the standard deduction. When I've not had a mortgage, I've never itemized.
  - greenyoda 13y ago
    Especially in states with high state income taxes, like NY or CA.
- gnoway 13y ago
  Not really, because you can take a sales tax deduction if you itemize. Sales tax deduction + mortgage interest deduction probably gets you over the hump. If you're in a state with property taxes you can deduct those as well when you itemize.

jpdoctor 13y ago

> Can we please get rid of the mortgage tax deduction now? It's welfare for the middle class, by another name. It ain't going away.

praxulus 13y ago

I don't mind the mortgage tax deduction, but it's only fair to add a similar deduction for renters. It should be a "shelter is a basic human need" deduction.

gaius 13y ago
You know, in Switzerland, if you own your home outright, the money you are not paying in mortgage is counted as income and taxed accordingly.

geebee 13y ago

I see a couple of problems with this: First - property taxes, depending on the state, are fairly high. In my case, this largely offsets the mortgage deduction - though not completely (maybe 75%). People talk about how the mortgage deduction is welfare for the middle class (and up), but there are also a lot of heavy taxes involved in owning property. Second - there's a difference between getting rid of a bad policy and never implementing it. If the mortgage deduction were a new proposal, I'd be opposed to it. Here's the problem - the government decided to "encourage" home ownership with a big deduction. New buyers factored it into what they could afford, and are now heavily dependent on it. Should the government now say "oh, on second thought, no, we shouldn't have encouraged you to do this after all, so we'll be pulling that rug out from under you now"? It would be very destructive. To me, this is a good illustration of how difficult it can be to remove a bad policy once it becomes very entrenched. Slowly phasing it out could work. Alternatively, removing the mortgage deduction and property tax at the same time would probably reduce the impact (if taxing discourages ownership, then we'd remove the encouragement and discouragement at the same time). Problem with this is that property taxes fund local government and the mortgage deduction is a federal deduction.