Source: WSJ

Category: Taxes and Policy

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21 Responses to “Should Congress Limit the Mortgage Interest Deduction?”

  1. thomas hudson says:

    would be interested to see one more stat on here, namely the state tax brackets. your ability to use the mortgage deduction depends on whether you itemize, which is also affected by how much you pay in state and local taxes. states with low or no income tax would have less people use mortgage deduction, all things being equal. makes the playing field even less level.

  2. flocktard says:

    What COULD be done is to cut back the dollar threshold on deductibility, or cap the deduction at 28%, as some are suggesting for municipal bonds, which I think would be a big policy mistake.

    All tax “reform”- if you can call it that- revolves around trade offs of deductions for marginal rate reductions, essentially reducing the process to a shell game. Cynically, the GOP is gaming the reform to get some cuts for their patrons. We should be focusing on closing the “gimmees” and raising some much needed revenue. But it won’t happen. Too sensible.

  3. RW says:

    There doesn’t seem to be much doubt that the federal government over-subsidizes home ownership but it would make more sense to phase the mortgage interest deduction out above some definable income level(s) rather than simply excluding it altogether.

    NB: the FIRE sectors have proven largely immune to any effort at creating a more rational system much less an equitable one — the cost effectiveness of lobbying is particularly apparent here (some research shows a return of 22,000% on lobby dollars spent) — so surveys such as this are as far as any of it is likely to go.

  4. gordo365 says:

    I have a hard time thinking through a justification for letting someone write off interest in 2nd home or motor home etc. note – system is limited now to something like $1m loan value etc.

  5. The mortgage interest deduction pales in comparison to the exclusion of employer-provided health insurance:

    The Question of Taxing Employer-Provided Health Insurance (Bruce Bartlett)

    And I suspect that many people who complain about ACA or the deficit have no idea they may be getting some very generous government help themselves.

  6. Iamthe50percent says:

    I find it hard to believe that the average mortgage interest in Illinois is only $2000 to $3000, unless ‘per tax filer’ means double that for a couple as most homeowners are a married couple. To buy a new townhouse, one must spend at least $200K at 4.5% for 80% that comes to $7,200 for just a townhouse. Combine that with many people still having mortgages North of 7% and it just doesn’t make sense.

    Or does ‘average’ include those tax filers without any mortgage. I’d be interested in the median deduction with the median taken only from those claiming the deduction.

  7. 4whatitsworth says:

    It is already limited to interest on 1mill but why not go further? Many of the baby boomers have paid off most of their mortgages (after 50% is paid off you don’t see much of a deduction) and this would be next logical step to burdening of young working people. In addition this would help to disillusion these workers and encourage them to be part of the growing majority who depend on the government.

  8. bruce909 says:

    No. It should be eliminated. All of these tax shelters that got us into so much trouble were about the leveraged use of real estate. This was all about the tax deduction. Eliminate the interest tax deduction on residential property and large bubbles will be much less likely to form.

    • LeftCoastIndependent says:

      It was the tax law change that gave a tax free gain after 2 years that got the “flippers” going nuts. That and all the tax shelter of income property gave rich folks a place to park their money. Not to mention subprime loans.

  9. mpappa says:

    They already do with the amt tax. Its a bad idea to go beyond that. Not a fan of amt either.

  10. LeftCoastIndependent says:

    No matter what the tax code is, folks always find a way around it. If we can’t write off interest on our personal home, then we will rent it out and turn it into an investment property so we can write off interest expenses, depreciation and much more to boot which will cause even less income taxes paid to the govt.. Then we can go and rent somewhere else from someone else who is doing the same thing. Can’t wait for the websites to start that will “trade” like parties up. After our renters have paid off our mortgage, we will move into our house that is owned free and clear. I guess it’s the trouble with specific taxes in general. Once again, the ONLY fair taxation is a flat tax on all income ( or consumption) and no special privileges to anyone, short term gain or long term.

  11. san_fran_sam says:

    not until it becomes no longer worthwhile for me to itemize. about ten years. ;)

  12. Livermore Shimervore says:

    No. While it distorts pricing, the RE will always be distorted largely because of the fundamental shift in securitzation from the days of old when the 3-6-3 guys were tight on doling out American Dream checks. The middle class household is stuck in this pricing distortion and are barely meeting their obligations during the stagnant wage era. Elimination of this deduction will not right pricing distortions in the market, it will only further constrict aggregate demand among the middle class ranks as they will be cutting back on trips to the mall or worse IRA contributions.
    If you want to fix the RE clusterfack, well you’ve got a lot of work to do already. No need to start looking for more dead bodies.

  13. Willy2 says:

    - Yes, Congress should not only limit the Mortgage Interest Deduction, it should be abolished.
    - The benefit of this deduction is already brought down. Because the tax deduction rate has been lowered.

  14. ByteMe says:

    While I think it’s important to encourage home ownership — owners take better care of their places than renters — the piece of data that was eye-opening was to find out that Canada doesn’t provide a home mortgage deduction and yet their home ownership rates are similar to ours. So it doesn’t appear to encourage anything other than to purchase a slightly larger house than you otherwise would have been able to afford.

    I think it’s reasonable to slowly wind down the deduction in steps, the first being to limit the deduction to the first $50,000 in mortgage interest, and have it drop $10K per year for 5 years until it’s gone or Congress changes its mind when it finally hits their pimps in the wallet… like it did with the flood insurance rate changes they passed a few years ago and then fell all over themselves to change again this year when it finally started affecting their pimps.

  15. rat89 says:

    It’s funny how those in favor of eliminating the mortgage deduction are silent on the tax treatment of carried interest, and the effect of the amt, which does an excellent job of clawing back all deductions. Also, why not eliminate preferential treatment for qualified dividends? The mortgage interest deduction was not a driver in getting people to over leverage themselves in real estate – the elimination of loan standards was – allowing ltv over 80%, bad standards on appraisals, and crazy back end loan ratios. The mortgage interest deduction helps people buy a home and also helps them stay in it. Eliminating it or curtailing it would hurt the housing market as well as the finances of current owners. Also, I come across very few people who have paid off their mortgage, in any age group. More common are owners who have a heloc behind their first mortgage, and an outstanding balance which will cost more as interest rates adjust upward. If anything, tax policy could steer borrowers into safer loans, but rewarding them for choosing fixed rate loans, and/ or having an ltv below a specified threshold.

    • ByteMe says:

      Bogus supposition. A LOT of us view the carried interest nonsense as an immoral grab by the 0.1% takers.

  16. James Shannon says:

    More divide and conquer politics for the benefit of the CentaMillionaire$ and Billionaire$. I’m sick to death of the Uber Rich deciding whats best for the 99%. It will end badly if we continue to allow the UBER RICH to rule with money and instill fear! I want true equality of opportunity, something the CentaMillionaire$ and Billionaire$ always and everywhere oppose!
    1) Eliminate ALL and Imean ALL deductions from personal income.
    2) Everyone and I mean Everyone must declare ALL income from ALL sources to include Capital Gains from all sources and Pro-rata share of Corporate Income from stocks and private equity etc must be declared as personal income.
    3) Eliminate ALLCororate Income Taxes and Business Taxes like FICA and Property which will now ALL be declared as personal income!
    4) Change the TAX CODE to fund a government for the benefit of ALL which progressively and eventually TAXES ALL income above $10,000,000 at 100%.
    5) Tax all Current Net Worth exceeding $10,000,000 at 100%

    • LeftCoastIndependent says:

      R u 4 real ? Innovators like Steve Jobs, Gates and all the rest of them would just shut their companies down when the 10mil. mark was met and tell employees to come back next year. NOBODY is going to work for free. Would U ?

      • Iamthe50percent says:

        Jobs and Gates are criminal monopolist thugs. Yes, they should have taken their $10,000,000 and walked away, turning their companies into non-profits. Instead they distorted the markets with their insatiable greed and craze for power. See, someone DOES agree with Shannon.