That mortgage deduction again

The mortgage-interest deduction should be abolished, of course — it’s a dreadful piece of public policy. Homeownership, especially during times of high unemployment, does more harm than good, and there’s not even any real evidence that the deduction actually increases homeownership, rather than just artificially making houses more expensive to buy.

Really?

Who do you think pays virtually ALL the taxes? Hint: 100K++ earners...

Um, Manhattanfox, that's not even close to correct. Sales taxes, FICA, Medicare, state income taxes and real estate taxes (assuming they are ultimately paid by renters), lotteries, and the various excise taxes are all seriously regressive. Even Federal income taxes, which are about the only tax that tries to be progressive, hit the upper middle class far more than the genuinely wealthy. The vast bulk of taxes are paid by the middle class, most of which is well below 100k.

It is true that high earners take home an increasingly disproportionate share of income and wealth. So they pay more because they have more, spend more and take more, and many taxes are based on having, spending or taking. But as the top percent or so share of the economy has grown, their share of government benefits has grown and their share of the price for those benefits -- including, of course, the property system that gave them their income in the first place -- has gone down.

Riversider: Stop looking at people making more than $200,000 a year. I own buildings in NY and can tell you first-hand that many tenants who use Section 8 vouchers and food stamps have kick ass 50 inch Samsung TVs and drive BMWs amd Mercedes. Must be nice to stay at home all day and milk the system for all its benefits. And you're bitching about tax breaks for people who make $200,000 a year!?

so even the playing field - give renters a tax deduction for their rent (wink)

Communists. The home mortgage interest deduction is just fine. Keep your red hands off it. And FYI: in NYC $100K+ is solidly middle class for a family of 4+. Rich? Are you kidding me? Go fix something else in the tax code. Now move along.

Nothing worse than the economic left. I have never seen the entitlement crowd with so much power. It is truly disgusting. Yes, yes, demotivate people who work hard to create things. That will put us on the path to prosperity.

Stuffy Rich Old Banker Type: "At E.F. Hutton, we make money the old-fashioned way ... THEY earn it!" ***points behind him at slave-wage laborers toiling in terrible conditions***

$100K in NY doesn't even pay for private school for two kids.

"Riversider: Stop looking at people making more than $200,000 a year. I own buildings in NY and can tell you first-hand that many tenants who use Section 8 vouchers and food stamps have kick ass 50 inch Samsung TVs and drive BMWs amd Mercedes. Must be nice to stay at home all day and milk the system for all its benefits. And you're bitching about tax breaks for people who make $200,000 a year!?"

This... reminds me of Uhab (low-income) housing scandal where they found retired cops supposedly living in these HIGHLY SUBSIDIZED (ie buy a morning side heights newly renovated 1BR for $60k) and renting it out at MARKET rents to unsuspecting tenants..

Oh my good. You mean they're letting poor people watch TV and drive?

mortgage deduction=welfare for real estate, construction and mortgage industries--on the backs of all the suckers living in underwater housing and, of course, the rest of us taxpayers living within our means

nice post, financeguy--your patience is impressive

NYC is a different animal and should not be compared against the national average.

I agree with earlier posts that $200K per household in NYC is very much middle-class when adjusted by high cost of living in the city. I think a flat tax rate should be applied to all classes to encourage growth and improvement.

Why encourage low paying jobs by giving tax breaks to low income earners?

After reading the article, it is clear that the biggest error is assuming that renters pay the same as people who own. This is a serious error.

If I were to guess, virtually 90% of all owners in NYC pay more, even after tax deductions, than renters. It's not rocket science - a 1BR in Midtown that rents for $3,000/mo will likely cost about $4K - $5K (even assuming decent downpayment of 25% - 30%) if not more to own.

In theory, they should be equal but it isn't.

"Why encourage low paying jobs by giving tax breaks to low income earners?"

Because some one still has to do those jobs...changing the tax code doesn't mean that crappy jobs no longer need to get done.

$1mm interest deduction is as much an american birthright as the right of the leaders and their children to not to go to any of the wars they start.

Manhattanfoxyborker. Flmaozzzz what self serving borkers.

"mortgage deduction=welfare for real estate, construction and mortgage industries"

Um, WRONG.

A "deduction" is not "welfare".

It's this wrongheaded view that every dollar earned in this country belongs to the government, and that by *not taxing* us as much, the government is somehow "giving" us money.

That couldn't be further from the truth.

Agree that "crappy jobs" still have to be done. By giving tax breaks to people with "crappy" jobs encourages them to stay in these jobs. If you work hard, smart, etc and get rewarded for it, you would go for it.

Getting a higher tax for earning more does not seem right. The incentive seems backwards.

From today's WSJ, the top 10% of households (those earning more than $163,200) paid 54.6% of federal income taxes. The next 50% (those making between $33,500 and $163,200) paid 42.5% of total fed taxes.

While I don't think the mortgage deduction is going away any time soon, it does serve to inflate the cost of housing to the benefit of real estate, construction, and mortgage industries. If the deduction was eliminated tomorrow, housing prices would quickly adjust downward. People would pay less to purchase homes and pay more in income taxes to the federal govt.

And how is paying more income tax desirable?

I guess as a country we have to decide if we want to make housing affordable or provide benefits to builders and existing home owners. We can't do both! And the mortgage deduction means renters are subsidizing owners.

Renters are subsidizing homeowners? Oh, please. And who is subsidizing rent controlled and stabilized apartments that are rented? And couples subsidize families with children on family health plans since they cost the same amount. And childless people subsidize the schools for all those who breed and could never afford to educate their spawn unless subsidized. And.... let's not get into a tit for tat. The whole world ain't gonna be made "fair" by removing the home mort. int. deduction. It is just going to cause chaos among those who made serious financial decisions based on the deduction's existence. If it is to be changed, then prospectively applying it is at least a bit more fair than retroactive application to mortgages already in existence. Now, those who advocate eliminating it often say it should be done in conjunction with an overhaul of the tax code that would leave many in a net unchanged financial position. But I trust government to not screw that up about as much as I trust the politicians have the people's best interests at heart.

Sorry Kyle. There's no difference between giving home owners a lower tax rate and giving them a deduction, the effect of which is to shift the burden. The idea that we need to maintain the status quo doesn't work. I own, but I realize this is not a good long term strategy.

The military industrial complex is not a good long term strategy either. Go change that first. Then come back and we'll talk about nickel and diming home owners. Or maybe tackle Soc Sec. Or health care. Those things are crippling us. The mort. deduction may need changing in some minds, but it isn't bringing the country to its knees. This other stuff is.

I'm not sure why the "military industrial complex" should be written off so quickly. Once we lose to China militarily, where are we economically?

But why should a rental property owner be able to deduct interest expense of a mortgage against the rent roll which effectively gets priced into the rent paid by renters, but the homeowner is not entitled to do the same against his effective owner-occupied implicit rent?

>Um, Manhattanfox, that's not even close to correct. Sales taxes, FICA, Medicare, state income taxes and real estate taxes (assuming they are ultimately paid by renters),

for these lower incomes, many of the rents are subsidized, so no, real estate taxes then aren't paid by renters in the lower classes.

FICA and Medicare are for benefits

State income taxes are more a mirror of federal taxes than not

But the real fallacy is that these taxes are not regressive in the slightest. At what point, financeguy, are you saying that someone earning more actually shifts to paying a lower dollar amount to the government? Earn more $, pay more $. Earn less $, pay less $. Bank accounts aren't expressed in percentages.

>$1mm interest deduction is as much an american birthright as the right of the leaders and their children to not to go to any of the wars they start.

Were you born here?

>While I don't think the mortgage deduction is going away any time soon, it does serve to inflate the cost of housing to the benefit of real estate, construction, and mortgage industries. If the deduction was eliminated tomorrow, housing prices would quickly adjust downward. People would pay less to purchase homes and pay more in income taxes to the federal govt.

If you really think about what you are saying, no, it doens't subsidize anyone materially but current home owners, and land owners.

The mortgage tax deduction is available to everyone and anyone who wants to participate.

All you have to do is buy a home.

No one is stopping renters from doing this.

Except if it doesn't make sense for your circumstance. So you are left with making a stupid decision
to buy or be a renter and subsidize the buyer.

So change your circumstances.

The world is not a perfect place, and not all deductions apply to everyone.

Suck it up. If it really bothers renters that much, they'll find a way to change their "circumstances" so it'll make "sense" to buy.

"The mortgage tax deduction is available to everyone and anyone who wants to participate."

... so banks don't turn down anybody who "wants to participate"? And everybody has the downpayment, closing costs, and other costs associated with buying and owning a home? Or are you just gleefully happy to deprive the poorer two-fifths of this nation from participating in this universal perk?

Let's not even discuss the mis-allocated resources. Some of the money that goes to housing would have
gone somewhere else. The gov't could pay people to buy widgets, so of course people will buy widgets
but do we really all need widgets?

5000 square foot widgets with poor insulation and high solar gain in the summer.

".. so banks don't turn down anybody who "wants to participate"? And everybody has the downpayment, closing costs, and other costs associated with buying and owning a home? Or are you just gleefully happy to deprive the poorer two-fifths of this nation from participating in this universal perk?"

If renters do what all the other homeowners did ... handle their finances responsibly, save up for the downpayment, and (for the most part) buy within their means ... there's no reason for a bank to turn them down.

"Some of the money that goes to housing would have gone somewhere else."

OK, again with the wrongheaded thinking.

This "money" is not the government's in the first place; it's the TAXPAYERS'.

Taxpayers keeping more of their OWN MONEY is not "money going to housing".

We've had this discussion before. Your thinking is incorrect here. A deduction is no different from a tax credit.
There's no dispute here amongst tax poicy experts or economists on this point.

No, my thinking is quite correct.

The government doesn't own my (or your) money. It's OURS. My not handing more of my hard-earned cash to the government is not the government "giving" it to me.

"If renters do what all the other homeowners did ... handle their finances responsibly, save up for the downpayment, and (for the most part) buy within their means ... there's no reason for a bank to turn them down."

... now you're resorting to standup comedy. But most of "all the other homeowners" can't hear you ... they're under water, handling their finances responsibly!

Um, they're underwater not because of any mistake THEY made.

They're dealing with Wall Street's monumental fuck-up.

"They're dealing with Wall Street's monumental fuck-up."

In which mortgage tax policy played absolutely no part? Your f-ing with us again right Matt?

Mortgage tax deduction policy has been with us for 85 years.

It was not part of this problem.

Remember when all consumer interest (cars, credit cards, etc.) was deductible? The Tax Reform Act of 1986 got rid of that. Turned out that people still continued buying cars without that encouragement.

Since everyone agrees that there've been too many government incentives for homeownership, why not toss this one? Or does the high moral tone on SE apply only to those benefits we don't receive ourselves?

What about the $500,000 capital gains exclusion. Why does this pertain to real estate and not stocks
businesses or other investments. Another gov't mistake. Is a house somehow a better investment than
a business?

Isn't NYCMatt the guy who explained to us all that the mortgage deduction is so valuable that he pays nothing for ownership -- he is living entirely on government largesse?

Of course he doesn't want to pay taxes. Why should he pay for his fair share of the services that make NYC liveable if he has worked so hard -- he's told us that luck had no part in his success, so I assume he fed and educated himself from pre-conception -- to get to the point where he can freeload on the rest of us?

"Isn't NYCMatt the guy who explained to us all that the mortgage deduction is so valuable that he pays nothing for ownership -- he is living entirely on government largesse?"

I'd love for the government to pay for my housing, but alas. Not only am I paying for my own housing, I'm also saddled with paying for the housing of those in this city who refuse to pull their own weight.

***

"Of course he doesn't want to pay taxes. Why should he pay for his fair share of the services that make NYC liveable"

I'm already paying WAY more than my "fair" share, thank you.

The $9,000 a year you said you're saving is a nice chunk of change: http://streeteasy.com/nyc/talk/discussion/25312-re-taxes-now-fund-the-city

I do see, though, that it's all about principle with you.

That's right. Money I'm NOT PAYING the government is not money the government is GIVING me.

Because many people made their home buying decision with the assumption that they could deduct their interest payments, it would be unfair to strip it out immediately. There would need to be a long adjustment period where existing deductions were grandfathered.

Matt, think of things this way. If we stripped away the deduction, there would immediately be a substantial decline in home prices. Houses would be more affordable. People who saved would benefit over those who borrowed because they would be able to put more money down on the house and be less impacted by the expiration of the deduction. Of course, there would be a large increase in taxes paid by those who previously paid effective rates much lower than non-owners. Thinking further ahead, the resulting lower housing prices would cause more mortgage defaults which would cause more taxpayer money to be spent covering losses on government insured mortgages.

As for those who think the deduction doesn't impact the construction, real estate and mortgage sectors, don't all 3 benefit from higher housing prices? They would all scream bloody murder if it was revoked, trust me. If you own a construction company, wouldn't you like to be able to sell those houses for a higher price? Don't brokers get paid a %'age of the sales price? Higher price, higher commission? Don't banks want people to borrow more so that they generate higher fees and interest on those mortgage loans?

Matt, money you aren't paying for government services is money your fellow citizens are paying for you. Why do you think that stealing from your fellow Americans is more honorable than accepting government handouts?

And by the way, ALL your money comes from the government. Check your money. I think you will find that some of it says "Federal Reserve Note" on it. And the rest is yours only because the government tells Chase it can't take it. Not to mention that when the government bails out Wall Street (thus keeping NYC RE prices up), and when it subsidizes your mortgage by taking the default risk without charging for it (and keeping RE prices up) and by giving owner-occupants a tax subsidy it doesn't give renters or landlords (thus keeping RE prices higher) and by cutting interest rates to prevent Wall Streets screw up from causing even more unemployment than it did (thus keeping RE prices up) and when it provides the sewers and police and courts and schools and museums and transit and copyright monopolies and fire protection and and garbage collection and ports and securities regulation and pollution controls and property rights and parks and wars and retirement benefits and medical care and radio frequency regulation and food inspections and more that make your career possible, it actually is giving you money. And if we had sane politicians who were also willing to hire the unemployed when the private sector can't, it'd be giving you even more money.

I suspect you'd have trouble making a living doing voice-overs in Somalia or any other country wihout government services or taxes or public schools. But maybe you don't need luck or government -- you could just take your Glock and force us to pay you. That is, if you could get and keep a Glock without some government help.

its unlikely to disapear, but will probably be:
15 percent tax credit instead. no one is going to shed any tears for the high earners with huge percentage deductions

250k income can only deduct X precent. a spiteful move by democrats

no more 500k tax free sale, revert to pre-1997 tax of having to buy another primary prop. no tears shed for real estate investors.

"Tax expenditures," as loopholes are often called by the wonks in D.C., are just as much a form of spending as direct government expenditures. They total over $1 trillion a year. That they are hidden in the crevices of the tax code changes not a whit the reality: They represent public money being used for legislated purposes. (See a very good report from the Center for American Progress on the need for greater transparency in the realm of tax expenditures.)

In the housing arena, three tax expenditures jump out because of both size and political sensitivity: deductibility of mortgage interest on owner-occupied homes, deductibility of state and local property taxes on owner-occupied homes, and the exclusion from taxability of imputed rent on owner-occupied homes. They come in at about $79 billion, $29 billion, and $27 billion annually ($135 billion total). These are some of the biggest tax expenditures out there.

http://www.slate.com/id/2299850/

"And by the way, ALL your money comes from the government. Check your money."

Check your history.

The CASH I have on hand says they're FEDERAL RESERVE NOTES. The Fed is not part of the "government."

My other "money" that I earned from private employers is in the bank. Please tell me how that "comes" from the "government."

Your private employers get their licenses to operate (or the broadcasters for whom they manufacture "news" products do, if not your employers). They exist and function at the pleasure of the government.

ALL your money comes from the government.

Alan, that is absolutely not true.

Government has been attempting to REGULATE money for the past 245 years. But the money certainly doesn't COME from the government, nor does the government "own" it. Government's money comes from the people.

Reuters) - The top Democrat and Republican tax-writers in the U.S. Senate will propose a revamp of the tax code on Thursday that challenges their colleagues to justify retaining some of the country's most cherished tax breaks.

By proposing such a slimmed-down tax code, Baucus and Hatch would force fellow senators to make their case for retaining popular breaks, including the home mortgage interest deduction and the tax break on employer-paid health insurance.

http://www.reuters.com/article/2013/06/26/usa-tax-taxreform-idUSL2N0F21ZT20130626

I support eliminating the mortgage interest deduction and the 500k capital gains exclusion. There is no reason why home owners should receive these huge tax benefits while renters get nothing. Presumably a good chunk of my rent goes towards property tax--why can't I deduct that?

Simplify the tax code, get rid of all deductions, and lower the rates.

The real estate industry in its globality (home builders, brokers, contractors, lawyers, architects, designers, home improvement industry,...) represents a huge chunk of the economy, real estate is the number one source of wealth for the middle class (upper class s comes from financial investments). But I agree it distorts economic activity just as any other tax or subsidy, only on a massive scale.
In response to the previous post, a good chunk of the rent goes towards property tax indeed, that s for sure, and it can't be deducted by the tenant, but the property tax essentially pays for the local school system, which benefits the tenant, not the owner. So it is really double edged.

Concerning that property tax, you can really see it s a tax imposed on homeowners (essentially a wealth tax on the portion of your wealth invested in real estate) that benefits the community, and mainly the people with kids. Seen like that, it really doesn't shock me that it s paid with after tax dollars...
I have two alternatives to suggest:
-get rid of the property tax and replace it with a tuition fee for people with kids going to public school and an income tax for services that everybody uses (firefighters, police, sanitation etc).
-instead of limited this wealth tax to real estate, tax everything (savings, stocks, bonds, art, cars, trusts, 401k,..), lower the rate and get rid of "unfair" deductions.

These two alternatives just seem much fairer to me than the current system where owners supposedly "unfairly" use before tax dollars to pay property taxes... I dare anyone to prove me wrong.

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