Posted on 08/30/2009 8:45:34 AM PDT by ProtectOurFreedom
...arlier this month the nonpartisan Congressional Budget Office delivered its latest revenue-raising options for Senate and House consideration as they write this fall's tax and budget legislation.
Tucked away in the report are several incendiary plans that could — if adopted — cost homeowners billions of dollars. Though not formal legislative proposals, the CBO's options represent a handy fiscal menu for legislators to pick and choose from to reduce the deficit — now at unprecedented levels — or to pay for new programs they might want to advance.
Tops on the CBO's hit list for housing: Slash deductions for homeowner mortgage interest from the present $1.1 million limit to $500,000, phased in with $100,000 annual reductions starting in 2013 and extending to 2019.
Under current law, taxpayers can write off mortgage interest on their principal home debt up to $1 million, and on home equity debt up to $100,000.
Under the CBO's option, that maximum mortgage debt amount would shrink yearly until it hit $500,000.
Over a 10-year period, this change alone would boost federal tax collections by an estimated $41 billion.
The CBO offered up a second option if Congress wants to raise a lot more money: Replace the current mortgage interest deduction with a flat 15 percent tax credit for everybody with mortgage amounts below the declining limits in the first option. Rather than taking write-offs that are tied to your personal income tax bracket, every homeowner would get a credit worth 15 percent of mortgage interest paid.
Who'd benefit? Primarily lower- and moderate-income taxpayers who don't itemize on their returns. Who'd pay more? People with big mortgages and higher-than-average incomes, who are far more likely to itemize under current rules.
(Excerpt) Read more at mercurynews.com ...
“Mortgage interest deduction was never a cause of the crash.”
I agree, I said it was a major contributor. And I stand behind that. Millions of people buy homes so that they “screw Uncle Sam”, and they end up with bigger homes than they need...they just want that coveted tax deduction.
As for myself, I would rather see our over-investment in housing capital be used in something a bit more productive for the economy, like factor modernization, or oil drilling. We don’t to be pushing excessive capital into housing, any more than we should be doing the same with cars or shovels.
I dont see how this can pass. It would have the most impact in CA and NY. Nanny Pelosi and Schmucky Schumer will not let something like that happen.
The post WW2 boom was largely driven by two things. Huge amounts of unspent monies in the hands of people who earned the money during the war but had nothing to spend it on. This created a dam burst of pent up demand. And the desire among returning GIs to move out of the confining cities and give their kids what they saw as a better life. This created the housing boom which was a force multiplier throughout America for big business and small.
Gee, I believe I pointed this out back on Post 15, in addition to pointing out that the bozo who killed it was "Republican" BobDole, who Newt Gingrich referred to as the Tax Collector and who gave us Four More Years of Willy Clinton back in 96.
ALL interest should be deductible if the interest recipient is paying income taxes on it.
One of them "Principles" thingys....
Looks like any taxpayer that doesn't live in a million dollar house with a million dollar mortgage. I realize that it's hard for people in San Jose and New York City to accept but that includes most of us.
Don't worry Dear....you'll be next.
The Commie theft machine is never satisfied
This would affect me but it would hammer the limousine liberals on the coasts a lot more. I say do it.
“The post WW2 boom was largely driven by two things. Huge amounts of unspent monies in the hands of people who earned the money during the war but had nothing to spend it on. This created a dam burst of pent up demand. And the desire among returning GIs to move out of the confining cities and give their kids what they saw as a better life. This created the housing boom which was a force multiplier throughout America for big business and small.”
Fine...what does that have to do with the deduction? I’m saying that the deduction gives us overbuilt housing, at the expense of other investments, that would otherwise have gotten funded. It is a zero sum game.
Another example, student loans. They were supposed to ‘help’ students pay for college - instead they help colleges raise their tuition at something like twice the rate of inflation (if not higher). Net effect...a bunch of VERY WEALTHY professors of the humanities and a bunch of shattered lives from people who got stuck with the loans.
I just don’t like the distortions created by the government...perhaps others don’t mind (or don’t see the whole picture).
Two good references on how federal tax farmers view the “tax expenditures” for owner-occupied housing: deduction for mortgage interest and exclusion of inputed rental income from homeownership. (All your money is their’s, and when you are permitted to keep some of it, it’s called “tax expenditures”.)
http://real.wharton.upenn.edu/~sinai/papers/Poterba-Sinai-2008-ASSA-final.pdf
February 24, 2009, 7:40 am
Killing (or Maiming) a Sacred Cow: Home Mortgage Deductions
By Edward L. Glaeser
Edward L. Glaeser is an economics professor at Harvard.
The Great Depression provided an opportunity to rethink old policies in a major way. In the current morass, everything should, once again, be open for debate. One sacred cow that has long been in need of a good stockyard is the home mortgage interest deduction. So, in the spirit of libertarian progressivism, I suggest gradually reducing the upper limit on the deduction to loans of up to $300,000, and then refunding the tax revenues in a more productive manner.
The tax code allows homeowners to deduct the interest on loans used to buy, build or improve a home, for mortgage principals up to $1,000,000. (For mortgages used for other things – say, to finance the purchase of a car, or pay for college tuition – homeowners can deduct the interest they pay on loans of up to $100,000.)
A wide range of economists have long found fault with the deduction. Here are a few of the reasons:
Problem #1: Subsidizing interest payments encourages people to leverage themselves to the hilt to bet on housing markets. The size of the tax benefit is proportional to your debt. The deduction essentially encourages us to make leveraged bets on the swings of the housing market. That leverage means that housing price swings can easily wipe people out. We are currently experiencing the consequences of subsidizing gambles on housing.
Problem #2: The deduction pushes up prices in places where the supply of new homes is constrained, as it is in many coastal markets. Economics 101 teaches us that if we subsidize demand where supply is inelastic then the only effect is to make prices go up. Housing supply is pretty constrained in places like New York City because of land-use restrictions and lack of land. In these places, the deduction doesn’t make housing more affordable. It just transfers money from buyers to sellers, and that makes little sense.
Problem #3: The deduction is wildly regressive. The tax savings for households earning more than $250,000 is 10 times the tax savings for households earning between $40,000 and $75,000 a year, according to recent research by James Poterba and Todd Sinai.
If there ever was a case for small-government egalitarianism, then this is it. Eliminating the home mortgage deduction and replacing it with an across-the-board tax cut would equalize after-tax incomes without a single new government program.
Problem #4: The deduction encourages people to buy larger, single-family detached homes, and that increases carbon emissions and pushes people out of cities. The deduction encourages people to buy more expensive homes, which are generally bigger homes.
Bigger homes use more energy. The deduction is therefore implicitly urging Americans to run higher electricity bills and spend more on home heating. If global warming is a serious problem, then the government should be encouraging us to live in smaller, not bigger, dwellings.
Problem #5: The home mortgage interest deduction is poorly designed to encourage homeownership, which is, after all, the alleged desideratum. Much of the interest deduction’s benefits go to richer Americans who are likely to own homes in any case.
Poorer people who are on the margin of buying and renting often don’t even itemize. My own research in this area found that when the value of the interest deduction rose, during periods of high inflation, there was no observable increase in the homeownership rate.
If the goal of the deduction is just to increase homeownership, then it would make far more sense just to give a flat tax credit to people who buy homes. If the credit was independent of home value, then this would eliminate the incentive to buy bigger homes. If the credit was independent of borrowing, then this would decrease the incentive to over-borrow.
Now, I do understand that drastically reducing the cap on the mortgage interest rate now, in the midst of a housing crash, would be kicking the markets when they are down. Yet this crisis provides us with an opportunity to act that will be lost if we wait until housing prices rise again.
So here is my utterly quixotic proposal. Enact legislation now that will gradually decrease the cap on the mortgage principal for which homeowners can deduct interest payments by $100,000 a year over the next seven years until it hits $300,000.
The effect during the next two years should be sufficiently small that it will be unnoticeable in the current environment. Ending the madness of encouraging Americans to bet everything on housing, we can hopefully reduce the odds of a tragic repeat of the current boom-bust cycle.
“Few people who pay mtg int take the standard deduction.”
By the way, on this comment...I agree. But once you remove the biggest reason to itemize LOTS of people will no longer need to - me included (I’ve run the numbers). My life would certainly get easier using the standard deduction, although I would pay more that way.
What is the old saying ... Tax preferences are always bad except for the ones I get?
Angry, packed in ugly high rises - broken - renters.
Because depressed renters fall for dem lies about how "things will get better if you vote for us".
Look at the crime ridden hopeless inner cities - all fertile dem ground...
I don’t see how this can pass. It would have the most impact in CA and NY. Nanny Pelosi and Schmucky Schumer will not let something like that happen.
Talk about a tax increase for the middle class. This would be it in spades.
Kinda like 0bambi born in 2 hospitals in Hawaii.
“Obama and dems want us to be a country of renters.
Angry, packed in ugly high rises - broken - renters.”
Why is it your assumption that is better to be a country of debtors who owe hundreds of thousands of dollars to banks?
I’ve rented comfortably for many many years. I pay no property taxes, maintenance costs, and all of my utilities are included in rent. My rent is far lower than my mortgage payment would be. I invest the difference in other ways. There are other assets beside real estate.
Also...most of the people who live in those fancy high rises these days are condo owners, not renters. Some people actually like living in cities!! (like me) Shock...different people like different things! Imagine!
“Look at the crime ridden hopeless inner cities - all fertile dem ground... “
Also, have you been to Manhattan lately?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.