Posted on 06/09/2010 7:33:20 PM PDT by SeekAndFind
Want a tax hike that will really hit home … literally? The Hill reported yesterday afternoon that momentum has picked up for capping the mortgage-interest deduction that has incentivized real-estate purchases. It comes as the National Commission on Fiscal Responsibility and Reform looks at means-testing a number of programs, including Social Security and Medicare:
The popular tax break for mortgage interest, once considered untouchable, is falling under the scrutiny of policymakers and economic experts seeking ways to close huge deficits.
Although Congress last year rejected the White House’s proposed cut to the amount wealthier taxpayers can deduct for home mortgage interest payments, the administration included it again in its 2010 budget — saying it could save $208 billion over the next decade.
And now that sentiment has turned against all the federal red ink — and cost-cutting is in vogue — Democrats on President Barack Obama’s financial commission are considering the wisdom of permanent tax breaks such as the mortgage deduction and corporate deferral. Calling them “tax entitlements,” senior Democratic lawmakers have argued they should be on the table for reform just like traditional entitlement programs Medicare, Social Security and Medicaid. …
Policymakers seeking savings have tried to cap the mortgage interest deduction before — and failed. Five years ago, a bipartisan tax reform commission created by President George W. Bush proposed ending the mortgage tax break. But the commission’s plan stalled in Congress, partly because of popular support for the mortgage deduction.
Obama’s proposal, which would cut the deduction rate for itemized expenses for those making more than $250,000 to the rate paid by the middle class, was panned last year by members of both parties. They worried about its effect, during a recession, on charitable deductions and the housing market.
Flat-tax advocates had to deal with serious opposition to the notion of eliminating the mortgage-interest deduction entirely by arguing that a flat rate was easier to administer and didn’t put one American in the position of paying another’s mortgage interest. For fair-tax advocates, the entire issue is moot when one ends the income tax altogether and instead taxes consumption. This proposal doesn’t go as far as the two broad conservative tax-reform proposals, which is probably one of the reasons a means-test is back under serious consideration for this staple tax incentive.
However, that doesn’t mean it will be simple to pass. First, assigning a “rich” label to the $250K earning level is ridiculous. That would include a lot of small-business owners who report business income in personal returns. The sudden elimination of the tax incentive will upend their financial calculations and make future home purchases a questionable and riskier venture. It might incentivize the “rich” to rent or lease property instead of purchasing it, which won’t help this residential real estate market.
Still, conservatives should consider whether the government should prop up the housing market at all with this incentive, which is in effect a redistribution of wealth to the landed. Its intent is social engineering, a task that the Right abhors in other contexts — like, say, the CRA and Fannie/Freddie virtual subsidies to the subprime market, a task which has shifted of late to FHA. Is it time to means-test the mortgage deduction or eliminate it altogether?
Talk about the gang that couldn't shoot straight.
Interesting item of note in this article. I've long said that the mortgage interest deduction makes no sense at all. Not only does it drive up the prices of homes, but it gives an incentive for homeowners to stay deep in debt.
Captain, the full-of-crap meter just pegged! The nerve of people expecting to deduct interest (which the banks have to report as income). No we need to tax it twice so we can afford to give more money to good for nothings that simply refuse to work.
“Interesting item of note in this article. I’ve long said that the mortgage interest deduction makes no sense at all. Not only does it drive up the prices of homes, but it gives an incentive for homeowners to stay deep in debt. “
Me too, and I get a juicy deduction. I would just love to go to the standard deduction...which I could do if this deduction was gone (of course I could now, but I’m about to pay more in taxes than required).
These fools think all our problems are due to a lack of taxation.
Its the spending stupid!
And it it very true!!
Could you show me a bank that pays taxes, I have never seen one.
No tax provision is inviolate. I can recall when: all interest, including credit card and installment interest, was deductible; when all medical expenses, without the 7.5% threshold, was deductible; when State sales taxes in addition to other state taxes, were deductible; when business expenses were all deductible without the 2% threshold.
We are already well down the slimy slope and most people don't even know it.
While there are things businesses can do to avoid taxes, basically if you make profits sooner or later you are going to pay.
And I’m not fooled for a minute by any of this nonsense. This is part of a pattern of attacking private home ownership - more of that “we’re bad Americans because we have too much” crap.
That said, modifying this deduction in this economy with this unstable housing market is like playing with nitroglycerin.
I don’t remember when all those things were tax deductible, but let me ask a dumb question: What the heck is so special about interest payments that they should ever have been tax deductible in the first place?
ping
“Not only does it drive up the prices of homes”
The deduction has been around for 100 years, so how exactly does it drive up the prices of homes, Professor? Yes, getting rid of it would drive down demand and therefore prices. Getting rid of it would drive prices down, but keeping it would not drive them up.
That's a very good point. If anything, a tax change that is this dramatic should be phased in over time.
The tax deduction drives up the price of homes by making it easier for someone to afford a higher mortgage payment (and therefore a more expensive home).
And it impossible for a bank to pay taxes just like it's impossible for a corporation to pay taxes, they collect them , from you.
It also favors homeowners at the expense of renters, who tend to be poorer. I’m a homeowner, but the mortgage interest rate deduction mostly helps the wealthy and real estate agents.
And the end result of that is more and more expensive homes and suddenly you have to invent funny money mortgages so people think they can afford to buy them.
Fanny and Freddie bankrupt the mortgage industry
causing our economy to tank because the guberment said it was a great idea to make homeowners out of skid row bumbs.
But my mortgage interest deduction is bad very bad because I might go into deeper debt. Tax breaks did not destroy our economy the instead the country flourishes
Zer0 and the compliant socialists are destroying our country with staggering deficits with a $19Trillion price tag by 2015 and almost $100 Trillion in unfunded liabilities through SS and medicare but my little tax deduction is a dangerous thing.
Such B.S. This is how the die hard commie works .
Constant messages of propaganda and disinformation.
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