Recently, several legislators have proposed plans for gaining control of the skyrocketing national deficit that include cutting the mortgage-interest tax deduction. Currently, the IRS considers home mortgage interest a tax-deductible expense, and taxpayers can save money on their taxes by submitting the amount of interest paid on their mortgage as an itemized deduction. Interest is deductible on both main homes and second homes, but not on additional homes after the second home[1].
Thomas Hoenig, president of the Kansas City Federal Reserve Bank, believes that losing the mortgage-interest deductions may be an unpleasant but necessary “hard decision” that has to be made in order to regain control of the national budget, which has spiraled out of control in recent years. Hoenig hopes that the mortgage-interest deduction can be altered rather than eliminated, because “if we [keep it] without making some shared sacrifices, we’re going to pay in another form”[2].
Lawrence Yun, chief economist for the National Association of Realtors (NAR), disagrees, arguing that a lot of people bought homes under the existing “rules of the game” that allow mortgage-interest tax deductions. He predicted that not only could eliminating the deduction cause people to lose their homes, but that loss of the tax benefit could “reduce home values by an additional 15 percent and cause severe wealth destruction”[3]. Yun emphasized the need for “public policies that promote responsible, sustainable homeownership” at a NAR conference in New Orleans this weekend.
Do you think that the mortgage-interest deduction can or should be eliminated?
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[1] http://taxes.about.com/od/deductionscredits/a/MortgageDeduct.htm
[2] http://www.marketwatch.com/story/mortgage-interest-deduction-under-scrutiny-2010-11-05
[3] http://www.marketwire.com/press-release/-1348161.htm
Is it really necessary to say that this is one more example of the common man paying the bill for the bail out of the financial industry? I am tired of seeing a sector that is at least partially responsible for this debacle, yet has seen ZERO suffering while common people are losing their homes, retirements and livelihoods, reap still no penalties for their part in this whole scenario.
Another likely outcome from modifying or eliminating the mortgage interest deduction is that even FEWER people will elect to purchase a home (if they could, in this tight credit market). Consider the effect this will have on an already bottlenecked housing market.
I do not have a solution, but do see this idea as prolonging the crisis we’re in, rather than easing the situation.
REMOVING THE MORTGAGE DEDUCTION IS A VERY BAD IDEA. IT WILL JUST ADD MORE FUEL TO THE FIRE. NOT ONE PERSON WHO CREATED THIS FINANCIAL NIGHTMARE HAS BEEN ARRESTED OR PROSECUTED. IT’S EASY TO ALWAYS HAVE THE MIDDLE CLASS CLEAN UP THE CRAP FROM THE ELITE. I THINK A COMPROMISE LIKE THIS WOULD HELP, ONLY YOUR MAIN RESIDENCE RETAINS THE TAX DEDUCTION AS PER THE IRS RULINGS AND ALL OTHER REAL ESTATE INVESTMENTS FROM 2ND HOMES, INCOME PROPERTIES, COMMERCIAL PROPERTIES, ETC DO NOT QUALIFY FOR THE NEXT 3 YEARS. THIS SAVES REAL ESTATE HOME VALUES AND WILL HELP PROP UP HOME OWNERSHIP NATION WIDE. HOME OWNERSHIP IS THE BACKBONE OF THE US ECONOMY AND GETTING RID OF IT WILL GUARANTEE THAT THE US WILL BE THE NEXT 3RD WORLD COUNTRY!!!!!!
If the mortgage interest deduction were COMPLETELY eliminated, that would reduce the budget deficit by, what? 0.01%? The unaccountable Washington criminals would simply find another way to spend it before even before it has been collected. Meanwhile, home values would plummet further, fewer people would buy homes, more current owners would walk away from their mortgages, unemployment would surge past 20% (even by the “official” numbers, except in DC, of course)…… I’m trying to see how that step would help at all. The Fed prints money to buy back their own debt – just print money to pay for all of the deficit. Why not? It’s all going to end the same way anyway. Like a great thinker we all know once said, “The tree of Freedom must be watered occasionally with the blood of tyrants and patriots”, and there’s been a drought for many a year now.
What I agree with is that we are all going to be hit with rising tax rates and a lot fewer deductions if the economy and the deficit are ever going to be overhauled and moved toward a more sustainable means. I don’t think it’s fair for the tax payers to have to burden this simply because our government hasn’t the ability, wisdom, know-how or interest in creating fiscal policy that would have avoided this problem in the first place had they inacted policies years ago to stem the bursting of the Real Estate and discretionary spending bubbles, but like it or not, if things are going to turn around, we are all going to share this burden. It’s time to start tinking toward the 2012 elections even though the next two to four presidents will have little effect with their policies until they figure out that just making policy to get re-elected is not going to move this country forward. We need common-sense policies that will move us toward sustainable government and economy period. This of course is going to be very unpopular with the American people who have grown accustomed to being able to borrow whatever they need to live it up in style. Get ready for a big let-down folks and welcome to reality!
I think that it’s time to subject all government benefits to means testing and to also reverse any policy that makes the rich richer at the expense of the poor and the shrinking middle class, as a means of getting a handle on the deficit. This probably can’t be done today, not only because we lack the political will, but also because we lack the hard data. Everyone in America seems to think he’s in the middle class, which is just not so. In our haste to avoid class warfare, we’ve not collected the data necessary to define our terms and solve our problems. However, were I king I would decree that any person who is not required to pay income taxes, and/or is on food stamps (currently, 1 in 8), and/or is homeless, whether working or not, is officially poor; that anyone in a single-family home wherein nobody in the family makes more than $200,000/year from all sources (unless one source is food stamps) is officially middle-class, and everyone else is rich (even if he can’t afford to send all his kids to Ivy League universities or join a country club). I would abolish all government subsidies, including mortgage interest and other deductions, for the rich. Moreover, I would not give government contracts to any company having employees or subcontractor employees who qualify for food stamps or government-subsidized housing (in cases where no company would qualify, those companies that should be able to qualify would be broken up). I would pay all full-time politicians a percentage of their Congressionally-approved policies based on a poll, taken monthly, of their constituents’ approval. I would prosecute everyone who ever wrote or securitized a predatory mortgage, and for persons in those categories who don’t have any ill-gotten gains to confiscate, get them to accept a plea bargain whereby they never work in finance, insurance or real estate again. I would break up every company that was too big to fail, and force banks to rewrite mortgages so that the principal would vanish to the degree that the assessed value vanished. I would require that foreclosed properties not be sold to investors–either sell to someone who will live in the property or rent it. I would have a confiscatory estate tax, and a similar tax on patents and copyrights taken out by dead people–after all, if you can’t tax dead people who can you tax, and if you don’t tax dead people, you leave inequities in place caused by previous injustices, such as Jim Crow discrimination and crooked zoning changes.