Comments on: Re-examining the mortgage interest deduction A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: petepost Sun, 21 Nov 2010 19:22:47 +0000 Some great points from TFF regarding better ways to encourage home ownership through a tax credit and a gradual phaseout of the Mortgage Interest Tax Deduction.

By: TFF Mon, 15 Nov 2010 19:39:13 +0000 “Home ownership is not an investment… I’m not trying to have that debate all over again… but it does represent a store of value that can be tapped in retirement.”

Alternatively, it is a valuable asset that reduces your cash income needs in retirement. Home ownership is monetized daily, every time you wake up without owing another $50 of rent.

I still think there are better ways to encourage home ownership. A tax credit rather than a Schedule A deduction would be a start.

By: y2kurtus Mon, 15 Nov 2010 19:31:26 +0000 People with nothing to lose are a tough bunch to govern. They tend to do stupid things like walk through the desert, falsify documents, work in harsh conditions for minimal pay and sadly also resort to even more extreem measures in more extreem circumstances. If I had nothing to lose I would most cirtinly do exactly the same things.

Incentives toward building wealth via 401k’s IRA’s and homeownership need to be increased not decreased.

Home ownership is not an investment… I’m not trying to have that debate all over again… but it does represent a store of value that can be tapped in retirement. For far to many it is the only source of stored value. If you are going to take that away for god sakes replace it with something else for people to lose or I fear the country will be weaker rather than stronger.

By: TFF Mon, 15 Nov 2010 13:57:34 +0000 Zack, I would recommend a gradual phaseout of the MITD over a ten year period. This could be achieved by establishing a ceiling on the deduction which drops over time.

For any abrupt change, grandfathering is important. Repeal of the MITD will already impact housing prices (since it decreases the affordability at a given price), and a failure to grandfather would doubly punish somebody who purchased in good faith.

By: ZacharyST Mon, 15 Nov 2010 03:32:25 +0000 Unfortunately, the mortgage interest tax deduction is pretty much a third-rail of American politics. We have an ideology that everyone’s aspiration should be to own a home, and any policy move that could appear contrary to that is dead on arrival.

There are only two ways to end the MITD. The easiest would be as part of a grand political compromise, though the Debt Commission’s proposal isn’t really much of a compromise. The second alternative is to slowly phase our the MITD. That could be accomplished over a lot of years. Or, we could grandfather in everyone who already has a mortgage and not let mortgages enacted after Day X count towards the deduction. The grandfather approach is the worst of the three, but it may just be the most politically convenient.


By: MattJ Sun, 14 Nov 2010 18:44:55 +0000 To read this article, one would think that some time ago, Congress passed a tax break that for the first time granted wealthy home owners a deduction for the interest they pay on their mortgage. That is not the case; in fact, mortgage interest has always been tax deductible. Not that long ago, all interest was tax deductible. Over time, the insatiable need for more tax revenue has required taxing new things, and more and more interest paid has been added to taxable income. But the mortgage interest deduction has been too widespread, large, and visible for it to be attacked.

Personally, I’d be in favor of removing the mortgage interest deduction, but not alone. The problem with it is not that it goes disproportionately to the wealthy, but that it encourages debt. The change should be that make all interest paid part of taxable income, including for business, and remove the tax code encouragement of indebtedness.

Also, I’d like to see the worst tax expenditure on the table; the tax break for state taxes (income or sales). There is no reason for the federal government to subsidize high state taxes; all people with $200K taxable income should pay the same federal tax, whether they live in Montana or New York. If the states want to avoid double taxation, they can make federal income tax deductible on state taxes instead of the reverse.

By: TFF Sun, 14 Nov 2010 14:21:03 +0000 Average 2008 tax rate by income bracket (Table 8): w/250.html

Top 0.1%: 22.7%
Top 1%: 23.3%
Top 5%: 20.7%
5% to 10% 12.4%
10% to 25% 9.3%
25% to 50% 6.75%
lower 50% 2.6%

Superficially progressive, however when you add an extra 15% for Social Security and Medicare onto the wages of all but the top earners, that effectively closes the gap.

The lower 50% pay less tax than the rest. Everybody else pays 20% to 30% of their income to the federal government when you combine income taxes and social insurance taxes.

By: TFF Sun, 14 Nov 2010 13:08:14 +0000 My apologies, the proposal included raising the cap on Social Security taxation not eliminating it entirely. It proposes closing about half of the gap between the current cap and total wage income.

Still, any tax proposal that treats dividend and capital gains as ordinary income is a major tax increase for the wealthy.

By: TFF Sun, 14 Nov 2010 12:44:01 +0000 bmz, the truly wealthy get the majority of their income from dividends and capital gains. Raising the tax rate on those actually INCREASES the tax rate on the wealthy.

You can assign whatever tax rate to income that you like. Go ahead and tax the wealth at a 80% rate on their regular income. And guess what? You’ll find that they don’t report any regular income. They’ll convert it ALL to other forms of income that are taxed preferentially.

So ultimately you DO need to do the full math to unravel this one. The present tax system is so incredibly complex that most people don’t realize that the ultra wealthy pay proportionately less of their income to the federal government than a middle class family making $100k.

And I thought the proposal included lifting the cap on the Social Security *tax*? (Or was I dreaming that?) That would be huge, since it is a 12% tax on wage income. A 26% income tax plus 12% Social Security tax is the equivalent of a 38% income tax with no Social Security tax.

By: RZ0 Sun, 14 Nov 2010 10:57:51 +0000 Mortgage interest deduction is the QWERTY keyboard of American taxes. Proved ineffective, but impossible to get rid of.