Posted on 06/18/2012 9:48:44 AM PDT by Shout Bits
Shout Bits has argued that the Mortgage Interest Deduction is not so helpful to regular Americans, but with interest rates at historic lows, now is the time to eliminate this market distortion. Not only does the MID encourage buying unaffordable homes and promote market bubbles, the primary beneficiaries are wealthy individuals as large banks. Eliminating this deduction would actually help most ordinary homeowners.
For 2012, a couple filing jointly can claim an $11,900 standard deduction, even if they have no otherwise deductible expenses like mortgage interest. Therefore, the first $11,900 in mortgage interest paid by such a couple generates no tax savings for them. Today's national average 30 year fixed mortgage coupon rate is 3.8%, which means that a mortgage smaller than $313k (11900/.038) generates no tax savings for a couple filing jointly. Now, a $300k mortgage is not unheard of, but it is clearly not for the struggling working class.
Since the first $313k of a mortgage balance is not deductible, the tax incentive is to borrow as much as possible. After all, Uncle Sam is kicking in about a third of the interest expense above $11,900. Further, the tax code discourages paying down mortgage balances, since as interest payments fall, so does that tax benefit. This perverse incentive leads to speculative bubbles which burst when incomes fall below the point where an income tax deduction is available. The MID certainly contributed to the real estate crash of 2008.
Worse still, a recent study by Andrew Hanson at Georgia State University concludes that the tax code's reach into the mortgage market increases mortgage rates for modest homeowners. Mortgage lenders siphon off 9 to 17% of the government's subsidy intended for homeowners (as much as $1.7bln per year) in the form of higher rates. Not only does the MID not benefit smaller borrowers at all, according to Prof. Hanson's study, it costs them hundreds of dollars extra, even if they cannot take an interest deduction.
It is always wrong, corrupt, and perverting for the government to manipulate markets as it does with the MID, but now is the perfect storm of minimal benefits and maximum harm. Mortgage rates cannot fall much further due to structural cost limits, so the interest deduction benefit is nearly as small as it ever can be. Likewise, with tighter lending criteria, only the well-off can qualify for loans big enough to earn an interest deduction above $11,900.
With the Federal Government looking for ways to raise taxes, the very worst choice would be raise marginal rates. Instead, a flatter and broader based tax code is the answer that is more just and stable. Eliminating a deduction that only benefits the well-off, while harming modest borrowers and enriching big banks, is an obvious choice. The time is now.
Shout Bits is available on Facebook: http://www.facebook.com/#!/ShoutBits
Here's what having skin in the game is all about ~ a legitimate birth certificate.
Horse manure.
If the end result is that the scumbag politicians get more tax money to waste buying votes, then it’s a non-starter.
Sure you could and, as profits are INEVITABLY reduced thereby, you could watch as the hope of job growth evaporates, job losses accelerate and unemployment soars.
Profits disappear, jobs disappear, wage and salary income disappears. This sounds like the Disaster’s economic policy to a T.
You are phasing in and out here. From another dimension?
So when will you be taking the government to court and to jail for stealing from you. They are the ones who have forced you to pay a tax and are now not able to pay you SS. How are you going to make them pay one way or the other.
That is rather naive.
RL intrudes abruptly at times.
You are so clueless and an a$$. Are you sure your real name is not Obama.
I don't think so.
You haven't either. Does that make you Obama or just one of the crowd who want us to believe that we are going bankrupt?
What national debt are you talking about? If you think that we are not going to go bankrupt with the way they keep spending money, then you are even more clueless than you want everyone to believe.
No, i don’t happen to believe the United States is going bankrupt.
OK
I’m pissed off!!
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