Mortgage break may lose status as ‘untouchable’

It should absolutely be on the table. The reduction should be phased in over a 5-10 year period.

IMO, no way it will happen.

 

By "housing lobby" do you mean people with mortgages?

Best thing would be to eliminate the deduction but also lower everyone's rates so they pay the same but don't need the deductions to do it. Why must I engage in societal approved behavior to pay less in taxes? We swiss cheese our tax code with deductions and have to raise rates to get the same amount of revenue. Creates all sorts of inefficiencies and distorted behavior.

You wonder why we have a housing bubble when we actively incentivize people to take out a mortgage.

Mortgage deduction is too ingrained and widespread to ever be taken away though.

 

The housing "lobby" consists of those who profit in the industry: Home builders and realtors.

If the deduction were reduced or eliminated, interest rates would likely go down some, which would hit the profits of builders. How much would be set by the market. There is little doubt the net effect would be to make home ownership more expensive

I don't think it should be completely eliminated, just reduce the cap way below $1,000,000. Maybe to $500,000 over a period of time.

 

That's actually debatable whether or not it woudl make housing more expensive, most evidence indicates taht the tax break is factored into the price of housing, so the deduction actually ends up making housing more expensive.

If building houses truly becomes less profitable to homebuilders due to lack of demand, it will probably lead to less supply rather than price increases (and an increase in supply of rental properties and an increase in rents...)

 

My guess is we won't see anything "eliminated" but there will just be upper income limits put on it, like an interest deduction for the first $5000 of mortgage interest.

Home mortgage interest is seen as valuable social engineering tool encouraging family stability and retirement savings.

 

500k limit on the 1st house
250k limit on the 2nd house

 

When NPR had their imaginary candidate on, one of the issues the economists felt the candidate should eliminate was mortgage interest deduction. The only other issue I remember was cutting corporate tax. Both times I had the knee-jerk - no way! But I came around upon hearing their real world application.

But both issues were considered widely unpopular and not likely to be implemented.

 

Simple - if your income is over 500K/yr then you are not eligible for the mortgage deduction. That keeps a very popular tax deduction for the vast majority of Americans.

 

Of all the things they could begin to "fix" the problem with, I can't imagine this would be the first line of attack, though I could see its implementation in the way others have stated, regarding tiers of eligibility for deduction.

I think you only say this because you don't own a home and it doesn't affect you. Not everyone who owns a home is wealthy, and the tax break being removed would adversely affect a large portion of the middle class.

 

If they do the Romney "max deductions" idea, mortgage interest would just easily fit into that. It seems like the most likely solution right now to raise taxes on the wealthy without necessarily raising rates. I actually like it better than a rate increase as well because it reduces the ability to abuse tax rates.

 

Deduction caps all across the board just make a ton of sense. Cap net deductions.

I don't feel you should be rewarded for having an expensive home (like I currently am, tax wise) or for having a ton of kids actually, and so forth.

Charitable deductions are the tough one for me though; would be tough for me to support a cap there.

 

Capping total deductions is a great idea. Avoids the need to go after specific sacred cow deductions people like.

Also cap total government assistance payouts to prevent similar exploitation.

 

That has been my only fear with capping deductions. I worry that the rich will stop giving as much to charity if they can't deduct it.

I would be OK with a plan that caps all deductions at 50k but treats charity as a unique deduction with a higher cap or no cap at all. The real goal of the cap is to prevent deductions for things that really shouldn't be deductible, things that are really a luxury not a necessity. I'd hate to see charities punished.

 

I'm all for this. Reduce deductions for the wealthy instead of raising the rates. The problem has never been that the rates for the wealthy were not high enough..the problem is that the wealthy don't pay their rates because of all the deductions they take. Capping deductions at certain pay scales, or in this case cap the amount of interest you can take on higher end houses makes a lot of fiscal sense.

If you have a mortgage, you benefit from this regardless of your income level. This would actually hurt me quite a bit since my returns are usually fairly small..and I'm by no means wealthy.

 

I agree on both counts.

I've never liked the deduction. If they wanted to give homebuyers an incentive, it shouldn't have been for debt, but rather the purchase.

 

I have a mortgage, but I don't benefit. Standard deduction > Itemized deductions. Very common for upper working class/lower middle class couples. Obama mentioned creating a credit for people like me, but I'm glad that hasn't gone anywhere.

The housing bouble helped create the value of the mortgage interest deduction as housing prices increased, and deregulation helped increase the number of people buying homes they couldn't afford.

 

The wealthy benefit far more from the mortgage deduction for a couple of reasons. As juicy mentioned, for a smaller mortgage, the total interest you pay may not be much different from your default standard deduction - basically, the first $6000 or so of your mortgage interest has no tax benefit if you don't have other itemized deductions.

And since the income comes off the top, the deduction is worth more if you're in a higher tax bracket. If you're in the 35% tax bracket, your $10,000 in mortgage interest will save $3500. If you're in the 20% tax bracket, your $10,000 in mortgage interest will save $2000. (This is, of course, true for all itemized deductions)

 

It seems that the majority of this forum is usually for increasing taxes on the "wealthy". I use quotes b/c I think a family making over $250k is hardly "wealthy", maybe $500k but I digress...

Do any of you actually fit into this category? I ask out of curiosity, not trying to insult or argue...

I totally agree that the extremely rich game the system like no other and this absolutely needs to be addressed, but raising taxes/limiting deductions starting with families making $250k will absolutely have negative impacts as well.

 

Cutting services for the poor will have negative impacts as well, but we have a budget deficit that has to be closed one way or another. The simple reality is that ALL the new wealth created in this country over the past 10+ years has gone to the wealthy. The poor and middle class have had declining incomes, and this is the first generation in US history where kids will likely have a lower median income than their parents. So the current system entirely favors the wealthy. So if you're going to ask one side or the other to contribute more, it makes perfect sense to ask the people that benefit from the system to do so.

Yes. The vast majority of my income is in the form of capital gains. It's dumb that it's taxed at a substantially lower rate than wages.