Should the Mortgage Interest Tax Deduction be eliminated from the U.S. Tax Code?
- Yes (66%, 534 Votes)
- No (34%, 278 Votes)
Total Voters: 812
Eliminating or paring down the mortgage interest tax deduction would save the government $100 billion per year, according to the Center for American Progress. The tax subsidy continues to be the subject of much debate among economists and politicians who are divided about its effectiveness.
Supporters of the nation’s long history of subsidizing homeownership call the tax deduction a vital tool used by millions to achieve the American Dream. Others, however, find the policy an ineffective means of improving housing ownership levels.
first tuesday take: Americans (and Californians) must decide what is more important: a home saddled with a mortgage that makes them feel they’re living the American Dream, or a debt-free, solvent lifestyle that offers the mobility and freedom to fluidly pursue future wealth. Up until now individuals have overwhelmingly chosen to chain themselves to their homes and burden their families with debt ― an undisputedly major proponent of the Great Recession.
Mortgages have become so commonplace that planning to purchase a home with cash is almost unheard of. Homebuyers are encouraged to avoid savings plans and finance their purchase with a mortgage since acquiring a home free and clear of debt and retaining it as the family residence triggers no tax benefits (except deductible property taxes, if not eliminated by the alternative minimum tax). [For more information regarding homeownership tax deductions, see the June 2011 first tuesday article, Subsidizing the American dream and the March 2011 first tuesday article, The home mortgage tax deduction: inducing debt and stifling mobility.]
As a result, homeowners often justify their debt by relying on the mortgage interest tax deduction to help bear the additional costs – which implicitly passes the subsidy on to the seller and the lender. Thus, the homeowner is betrayed by the so-called “subsidy” these tax deductions provide since the deductions influence the homebuyer to pay an increased price for his home. Unfailingly, the subsidy is too small to offset the increased costs and financial risks of the larger mortgage he needs to finance the purchase of the property.
Even as myriad homeowners suffer through foreclosure and unemployment, 90% of Americans still believe homeownership is an essential pillar of the American Dream. Our unyielding obsession with property ownership remains steadfast even if our means of attaining it is desperate and rationally beyond reach. [For more information regarding homeownership ideals, see the July 2011 first tuesday article, Like myths, this old dream will never die.]
The reality of this post-recession economy is most people need to rent, not buy and own. The government acts in the best interest of its citizenry by eliminating tax loopholes and subsidies that keep its people living beyond their means.
Re: “Mortgage interest tax deduction a debt talk target?” from the Washington Post
The “American Dream” concept gets parroted across media and works well for the banks. The unfolding events, especially since the last five years, clearly indicate that its actually a nightmare for many. The bottom line seems to be that banks fund and control political decision makers and legislators – Democrats or Republicans alike. Banks would love its customers to remain indebted, after all that helps their bottom line. IN 1999 they’d leveraged legislators to allow lending 22$ for every 1$ of deposit. Perhaps it is now time to increase that to 1:33? Banks valuated homes such that customers’ debt goes up, had interest rates lowered so that customers can swallow the bitter pill of higher mortgage and yet not have a hiccup. Their vertically diversified securities arm was busy bundling overpriced mortgages into fancy bonds, having these labelled as AAA+, and selling them to European banks. The same rating agencies who helped brand bad bonds as AAA+ are now downgrading countries! Wow! One must be living under a rock not to see this.
If we didn’t get a tax break on mortgage interest, I would rent my home out and become a renter myself. That way I’d get the interest deducted as a business cost and achieve the same goals. He’ll, I could also deduct my HOA, gardener fees, and all home maintenance costs to boot! Imagine how ugly our nation’s houses would be if every house was only maintained by a landlord? Home improvement market would die and make the process even more expensive. The government would collect less tax ultimately because of this and the dramatic fall in house prices.
The whole argument of cutting back on a deduction to save the government money is ridiculous. Not only should they rein in their spending, the Federal Reserve needs to go. The Federal Reserve is an illegal, private, foreign entity that is not a part of our government and operates outside the US Constitution. Worse than loan sharks, they create money out of thin air and charge interest for that currency(something that Congress is supposed to do, free of charge). So now we are all supposed to chip in more and more paying our ‘fair share’ to cover this debt as it grows out of control. Totally OUTRAGEOUS!!!
Great idea guys ;)
1) We squeeze $100 Billion worth of tax out of the housing market. Homes drop further pushing the entire economy further into a dire pit of despair or, 2)… we go back to the 2007 budget and extend the retirement age to 72 allowing the government to pay back the 17Trillion already approved.
You see neither of these will every happen. The reason I know this is because these types of propositions are designed to divide you while my banking interests continue to fractionalize your currency allowing me to steal every ounce of value from United States of America and it’s weak little citizens. Focus on your little fight kids.
Live it, learn it, love being poor in the end, because that’s where you’re going. ;)
Vince L’s post makes no sense. The topic is the mortgage interest deduction on an owner occupied home. This quote from Vince is where I take issue. “Some will try to tell you that landlords and commercial building owners pass thier savings on to the tenant base in the form of lowered rent – I say you couldn’t prove that if you tried, market rents are just that, market rents.” Debt service interest on an investment property or a Schedule E property is a business expense, one of many. As such, are you Vince suggesting that business expenses no longer be allowed?
For right now, the Gov. and congress should just stay the hell out of the real estate market. Let it find it’s own stability. Taking away the mortgage interest deduction, to help pay down the debt, in times like these is just another stupid idea. The time to talk about and implement these ideas is when the market is stable and healthy. Is there any sane person left in D.C.?? Oh Yea! Would you like to rent to own your own home back from Fannie Mae? Where do they come up with all of these lame brain ideas!
Get rid of the second homes deduction and gradually reduce the MID to a 500K max. That will tax the so called rich and supposedly raise revenue. This is fair and keeps most borrowers with the current mortgage interest deduction unchanged.
Sorry did I read ,,,,more people NEED to RENT on this site…….WHAT???????
Well some sorry investor still has to buy the property and deal with renters who break things, who don’t pay rent after a few months. Or who knows what. That is a ton of risk. Take away tax breaks and watch home values drop…..hurting govt. DO YOU undestand the relationship????? oh and higher rents…..to cover the loss.
Usually I agree, but not on this issue.
YOU DO understand the more YEARLY TAXES & garbage fees a HOMEOWNER PAYS the less Home that person can afford.!!!! Instead of taking away the ONLY Economic Break a homeowner gets. HOW about get rid of ALL mortgages ALL of them. . Choke choke choke. But that would mean realtors would get paid less. Ok Home prices would drop 50% to 75% in a year, Less taxable value, less taxes for cities. Hmmmmmmmmmmmm. Affordable housing. But in a year or so the person would own the home outright, that sounds great !!!! Have you ever driven through a area of only rental homes? Junk. Get rid of mortages and the bank and the wasted interest payments and put that money into home owner neighborhoods. Radical View, will never happen….but a guy can dream of a free and clear home…..
I agree to some extent with Norman, in that it should be phased out for existing beneficiaries ONLY, however it can be cut off immediately to any homeowner not already enjoying this tax benefit and for non-primary homes. Where I don’t agree is the notion that there should be another tax deduction or reduction to take it’s place – then where would the savings be ???
The biggest problem I have with the mortgage interest tax deduction is that it is a massive tax benefit available only to those that own a home and is actually a punishment to those that rent or otherwise do not avail themselves of ownership. Some will try to tell you that landlords and commercial building owners pass thier savings on to the tenant base in the form of lowered rent – I say you couldn’t prove that if you tried, market rents are just that, market rents.
In discussing this with other real estate professionals last week, I actually had one tell me that his own mortgage interest tax deduction was the government’s way of rewarding those that pursue the “American Dream”, to which I pointed out that not only was everyone’s idea of the “American Dream” different but that the tax system is our method of collecting revenue to pay the bills, not a system of rewards and punishments.
Very interesting point and I agree with the analysis ! Buyers should be buying a home for family stability and pride not for it’s investment value.
I am amazed to see such an excellent case for eliminating the deduction in a newsletter for RE professionals. I am sure that when it was first instituted the home mtge deduction greatly improved the quality of housing that a family could afford. It may still improve it in the midwest where anyone can buy an acre from a farmer and build a house.
In Coastal CA all it does is increase the sales price of property to the benefit of sellers, lenders, and real estate professionals. Nevertheless, I think it would be devastating if it were eliminated with the stroke of a pen. Any elimination should be phased in gradually and accompanied by lower income tax rates.