By proposing to curtail the tax deduction for mortgage interest, the president’s deficit commission is sounding an alarm.
The home mortgage deduction is one of the most widely used and expensive tax subsidies. More than 35 million Americans claim it, and the federal government estimates it will cost the Treasury $131 billion in forgone revenue in 2012. Its size, popularity and link to the emotionally charged American notion of homeownership has made it so politically sacrosanct that there are serious doubts whether Congress will even entertain the idea.
But by raising the specter of ending one of the most cherished tax breaks, the commission is trying to jar the public into recognizing the magnitude of the nation’s budget deficit and some of the drastic steps that might be needed to close it.
How come us keeping OUR money “costs” the government? They seem to think it’s their money, and they are kind enough to let us have some.
If one agrees that home ownership is good for the country, and getting a tax break on the mortgage interest is beneficial in encouraging people to buy houses, then the
tax deduction makes sense. However, I don’t think may of us approve of allowing the tax break on any but the main domicile, not on second or third locations
and not on RVs and boats unless they are the main domicile.
And I personally think there should be a dollar limit to the deduction. Those that can afford $1M homes can afford the limit to the deduction. They still have the deduction for all the real estate taxes on their various abodes.
Although I like the “tax break”, I realize that it is in some sense
a subsidy, much as the subsidies that are handed out to
agricultural interests.
Every tax subsidy, whether is it child care credit, mortgage deduction, research write-off, involves gerrrymandering the tax code, often for social engineering. A tax on consumption would eliminate the gerrymandering, eliminate tax forms, and eliminate the IRS and its hundreds of thousands of government employees. It would, by definition, broaden the tax base to include everyone,,,,something the present code falls very short on also.
I’m with In Texas. The line about this or that “tax break is costing the government x millions of dollars” is the starting point and is wrong. And pretty much every time in these discussions, the tax and spenders make the ridiculous assumption that raising taxes will result in exactly that amount of increased revenues, e.g., raise cigarette taxes on 100 million packs of cigarettes will result in $1 million dollars. I read Eugene Robinson using this line of thinking [sic] on “Bush’s tax [i]cuts[/i] for the rich”.
There was a recent article that looked into stimulus monies spent in New Jersey. The good news is that [b]only[/b] 10% was wasted in wildly inflated charges.
Aack. Should be:
…raise cigarette taxes [i]by one cent[/i] on 100 million packs of cigarettes will result in $1 million dollars…
I agree with CDW. A tax on consumption encourages savings (since money invested is not taxed). Pundits are always bewailing America’s loss of its earlier mentality of frugality and savings — this would be a good way to solve the problem. There have been a number of simple models proposed that tax consumption, but do so in a way that protect working class folks from an onerous burden.
RR and IT make a good point. It’s what bothers me about debates over school choice. One of the things that is always brought up in debates over voucher programs is how bad it is for “taxpayer dollars” to go to religious schools. They are forgetting that the State has placed a gun to the heads of its parents (and non-parents), seized a portion of their income, and that is how it became “taxpayer dollars” to begin with.
That said, IchabodK I think is basically right. Although I agree with the sentiment behind RR and IT, we still have a practical question to resolve, which can be stated without framing it as though all a man’s income belongs to the govt first. Namely: if we are to have an income tax as the primary generator of govt revenue (and we have to have something — though a consumption tax is better), is it a good idea to exempt homeowners from it to some extent?
An interesting proposal might be to permit the deduction but limit it simultaneously in two different ways:
The deduction cannot be more than 5% of your annual income.
The deduction cannot be more than X dollars.
There is no doubt that the homeowner deduction encourages people to buy beyond their means and did so in 2003-2007. The first caveat would restrain all people regardless of their income (though perhaps the number could be changed to 6 or 7 %). The second caveat would make sure that the benefit was primarily for the middle class and not for the very wealthy.
I do not own a home, because I want to be a responsible borrower and the gov’t policies had resulted in the housing bubble that priced me out (unless I wanted to be irresponsible, which in hindsight would have been a smart financial move, ironically.) But when I’ve done my figuring, the deductions is certainly what made the idea even plausible. If it ends, so does my plan for owning a home. And I’m OK with that! I don’t much like social engineering via the tax code, even when it works in my favor. BUT…
I also agree with ideas promoted here about keeping the deduction but limiting it. Also, I would insist to my congressman that eliminating the deduction should not be a total gross increase for the gov’t! It should be partially offset by a broader reduction in the rates.
Actually, the idea that governments think that it’s all their money first is not too out there. The UK tax collection agency has put forth a proposal that employers send the paychecks to the government, the tax agency keeps what it wants, then sends the remainder to the employee. [url=http://m.cnbc.com/us_news/39265847/1?refresh=true]CNBC link[/url]
#9–That’s how it works in my family! I give my wife my paycheck and then she decides what to give back to me for my allowance. Doesn’t everyone do it that way?
Anyway, some of us caveman types still think our job is to drag the woolly mammoth back to the cave, and then our better half decides what to do with it.
🙂
In reply to #7, perhaps it is improper of government to require children to be educated.
#11What do you mean about the government REQUIRING children to be educated? Where is THAT in the Constitution?
The mortgage deduction at present is a lot like the tax break on employer-provided health insurance. If you don’t have access to an employer plan, you pay a lot more, and you don’t get a tax deduction. If you don’t own a house, you don’t get to reduce your income tax for part of the cost of having a place to live. A fair amount (not all) of the housing bubble was caused by government meddling in the mortgage markets. Reducing income tax rates and removing deductions would move us closer to a flat tax situation, in which the decision to rent or buy or the decision on what sort of medical insurance to buy would be made without government interference one way or another.
It’s a complete bluff, because in the middle of a mortgage paying crisis the one thing they cannot do is something that will specifically make mortgages less affordable.
Katherine, I never brought up the Constitution. Jon in No. 7 stated [blockquote] One of the things that is always brought up in debates over voucher programs is how bad it is for “taxpayer dollars†to go to religious schools. They are forgetting that the State has placed a gun to the heads of its parents (and non-parents), seized a portion of their income, and that is how it became “taxpayer dollars†to begin with. [/blockquote]
It begs the questions, why have publically-funded schools at all? I would submit that they are there because of mandated attendance through state or local law. Get rid of the mandate and you have no need to hold guns to heads to pay for such things.