Posted on 11/02/2005 5:57:15 AM PST by austinite
The Presidential Advisory Panel on Tax Reform has released its recommendations on reforming and simplifying income tax laws, with the result that the real estate industry was expecting -- the panel is suggesting eliminating the mortgage interest rate deduction and giving a credit of 15 percent of mortgage interest paid to all homeowners. Currently, only homeowners who itemize take advantage of the mortgage interest rate deduction. In addition, a $1 million limit on mortgages eligible for the tax break would shrink to the average regional price of housing, ranging from $227,000 to $412,000.
This is one time that robbing the rich might not work. Home values have escalated dramatically, causing more people to borrow more money and put less money down when buying a home.
Outgoing NAR President Al Mansell, speaking at the opening session of the National Association of Realtors convention in San Francisco last week, warned the panel before they made their recommendation that cutting the mortgage interest rate deduction would hurt middle-income families the most and it could cause a housing bust of as much as 15 percent of home values.
"Eliminating the mortgage interest deduction would hurt middle-income families the most," he said. "According to IRS tax return data from 2003, 52 percent of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000."
In addition, the typical homeowner could lose $20,000 to $30,000 in housing equity.
"Housing is the engine that drives this economy and to even mention reducing the tax benefits of homeownership could endanger property values," warned Mansell. "The tax deductibility of interest paid on mortgages is both a powerful incentive for homeownership and one of the simplest provisions in the tax code. It should not be targeted for change," Mansell said. "NAR will continue to tell Congress that Realtors® strongly oppose any attempts to alter the current tax treatment of mortgage interest."
Mansell urged reformers to look at the past -- The Tax Reform Act of 1986 proved that when the tax benefits associated with real estate ownership are curtailed, the value of real estate declines. In this case, the resulting loss of value in the commercial real estate sector was 30 percent, he said.
The current cap permitting deductions of the interest paid on mortgages of up to $1 million has not been modified or indexed since it was adopted in 1987.
"We are surprised that the panel would even consider reducing the cap," said Mansell. "Basing the cap on complex regional loan limit calculations makes no sense. In California alone, more than a dozen Federal Housing Administration (FHA) limits are in effect in various parts of the state."
The panel appears aware that its recommendations are "bold," and Treasury Secretary John Snow said he did not know what ideas the administration would embrace after the Treasury makes it recommendations.
"Now it's up to us," Snow said. The Treasury Department will "take the report, review it carefully, understand the implications and use the report as a starting point for recommendations that we will make to the President."
"The effort to reform the tax code is noble in its purpose, but it requires political willpower," the group said Tuesday in a letter to Snow. "Many stand waiting to defend their breaks, deductions and loopholes, and to defeat our efforts."
An AP report suggested that "members of the panel urged taxpayers and lawmakers to look at the whole plan, not just individual components," so they would know that "withdrawn tax breaks" would be replaced by "simpler benefits."
As the tax-writing House Ways and Means and Senate Finance committees will review the recommendations, so will the NAR. The Board of Directors has pledged to authorize a report on the financial impact of the loss of the mortgage interest rate deduction.
I'm on your side on that one. However, it should be noted that from a Federal standpoint all of those projects in the recent highway bill are funded entirely by the Federal motor fuels tax. This tax reform proposal would still be on the table even if there was no Federal highway bill.
Yeah -- most of them.
But reality has a way of intruding on our fantasies, doesn't it?
Good point, but credit card companies hate people like you and will damage your credit rating if they get a chance.
That's a good point. If my memory serves me correctly, the government allowed the S&Ls to underwrite commercial loans as a last-ditch measure to help them get out of that interest rate quandary I described earlier.
Name one, and why.
Not that I think you're a liar or anything.
Anyway, what do I care? That's someone else's problem, since I don't own a house or have a mortgage at the moment - I'm currently shopping, and the prospect of shaving 20% off the front end sure sounds fine to me ;)
If Michael Moore planted a mind control device into their brains and instructed them to behave in a manner designed to convince the voters that Republicans want to grind the middle class into the dirt so that the rich can hire servants cheap, there would be no way to tell the difference.
Haven't found it the case, both my husband and I have Credit scores above 800 and we've been doing this for years. I figure if they don't like the way I use the "credit cards" then they can quit sending me the offers at anytime.
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Nonsense. home ownership is the single most important factor in any community's economic and societal stability. This has long been recognized and encouraged through the tax code.
I can't believe what I'm hearing here. When people make their decisions on where to live and how to invest their money to make more money the mortgage tax deduction pays a huge role. What is wrong with that? We're not talking about people who are in debt. The class envy here is just flooring me.
Your point is valid, but this kind of thing happens all the time, and there is nothing anyone can do about it except complain. Sometimes "changing the rules of the game midstream" works to the taxpayer's advantage, and sometimes it doesn't. Making long-term investment decisions based on tax laws that can change in 24 hours carries an inherent risk.
If you think the elimination of the mortgage interest deduction is bad, just wait a couple of decades and see what happens when they eliminate the tax exemption on Roth IRAs.
Letting someone keep their own money is not a subsidy.
It is inherently unfair to provide a homeowner with an interest deduction that is not available to someone who pays other forms of interest on loans (auto loans, student loans, etc.).
If the tax only affects people who don't have the sense to structure their finances to avoid it (by paying the deductable type of interst instead of the non-deductable type), it's like the lottery -- a tax on stupidity. Since you get less of things you tax, a tax on stupidity is a social good.
I think EPU was talking about CC debt, which doesn't apply to your scenario. I doubt that EPU never uses a CC.
Fine. The tax code already encourages home ownership by eliminating the capital gains tax on the sale of a primary residence. Anything beyond that is completely unnecessary.
Ironically, the mortgage interest deduction has really done nothing more than drive up the cost of homes by making them "affordable" to people who would otherwise be unable to pay exorbitant prices for their homes.
Of course the bank would own the property because the decrease in value put the owner upside down just like the S/L debacle.
I hate paying FICA taxes, and I despise those stupid "user taxes" on my telephone bill.
Credit cards are a wonderful tool if you know what you're doing and how to play the game.
I carry credit card debt - usually 0% promotions for a year. Basically, that's free money. I take that money and invest it in mutual funds where I earn interest. When the card starts to charge interest, I pay it back IN FULL.
Oh, I also have another card where I get 5% cash back on groceries, gas, and drug store purchases. I pay that in full every month before any interest is applied.
Sometimes, interest is only 1.6% or 3% promotional for things like balance transfers. It's not hard to earn better than 3% on many investments. Sometimes it's wise to carry credit card debt and let your money work for you.
So you only dislike taxes that YOU have to pay, and you like taxes that other people have to pay but you don't.
You're right! Here in the San Francisco Bay Area, you need at least $350-$400K to even approach middle class! A house worth less than $700,00 doesn't exist in this area except in the slums.
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