Garrett Baldwin: Don't Just Cut the Mortgage Deduction… Cut All Deductions and Lower Taxes
If home ownership is the American Dream… then why do we need government to subsidize it?
The home mortgage interest deduction (HMID) is a lopsided tool of economic alchemy that favors the rich, and artificially increases housing prices due to the "stimulus" it creates.
According to the Congressional Budget Office, this tax break will "cost the government" more than $1 trillion over the next decade. The HMID mostly benefits households earning $75,000 to $500,000 a year. According to the Tax Policy Center, this range of Americans earns 77% of the tax savings from the HMID.
Now, I don't think it "costs" the government anything.
It's your money, since you put in the time to earn it.
But this mortgage deduction also creates a false incentive.
The reality is that mortgage lenders and real estate companies pitch more expensive houses based on a person's ability to use this "free money" to finance a home. Many Americans artificially rely on this tax credit in order to finance a house that they couldn't afford, or wouldn't purchase, otherwise.
Of course, this is a benefit that no reader wants to concede. But it amazes me that people oppose one subsidy, but then bark like hell to keep something in their own self-interest.
Sure, people love to complain about subsidies to pay for healthcare and food, and everything else under the sun. Big oil gets tax breaks, and failing solar companies, too. I hear people complain that ordinary Americans don't receive that sort of treatment…
Well, they do — to the tune of more than $1 trillion over 10 years. That's a massive tax break… That's the U.S. annual budget deficit. And it's not just for the first house… People can take this deduction for their second home, their third home, their boats, anywhere that they can claim they sleep, there's a tax break for that.
But if Americans want to make a statement about self-sufficiency, then give up the extra bedroom and live within your means. If you don't like the government subsidizing corporations, then stop having the government subsidize you.
If we are going to really talk about a true free market, then let's live it. Let's lower income taxes and carve away all these deductions that only favor one particular class level.
Then we can let the market decide who really wants a house. We can have a more stable housing market that is closely tied to what people can truly afford. This will help curb speculation and set real prices for housing instead of one that has artificial tax deductions baked in.
You can say I'm out of my mind. You can defend the "good" kind of stimulus, which only finances false demand and helps build a bubble.
You can say that I am unconcerned about current homeowners – that it would "destroy the housing market." Well, there's a prescription for that. I would hope this deduction could be phased out over 10 years with a gradual reduction in income taxes to complement the move.
The fact that people are complaining that removing this tax incentive would "hurt" the housing market proves that it is artificially supported by government incentives.
And then there is the completely irrational argument that pushing dollars into home ownership equity is the best long-term option, particularly when appreciation is not guaranteed.
The greatest myth to help inflate the housing bubble was that home prices would always keep going up. This message was tossed around the world by our own public policy experts who helped facilitate the mortgage crisis.
If we're going to champion free market economics… then let's commit to free market economics.
Lower income taxes for everyone and remove the deductions for the few.
Then, if someone wants a house, they will buy one.
Frank Marchant: Preserve the Middle Class, Save the Mortgage Rate Deduction
If you don't care about the middle class or the viability of U.S. housing markets, by all means do away with the home mortgage interest deduction.
One of the few perks the middle class has is the mortgage interest deduction. Dating back to 1894, then ratified by Congress in 1913, it allows homeowners to deduct the amount of their mortgage interest from their annual income for tax purposes.
The benefits are numerous. For some new homeowners it makes their burden a little lighter while giving them the satisfaction of home ownership. For veteran homebuyers it affords them the opportunity to buy a more expensive home.
The mortgage interest deduction means your monthly payment is actually less than it appears.
A portion of your house payment will come back to you as a lower tax bill. Since interest is mainly paid down first in your mortgage, it means the largest write-offs for homeowners come during the first years of their mortgage.
The mortgage interest deduction has been in place for 100 years. Congress and the president are looking for ways to end or curtail this deduction to collect more tax revenue.
If successful, the ramifications will be traumatic for all existing and potential homeowners. The elimination of this deduction will immediately hurt the sales of all homes.
The jolt to an already-fragile housing market will be felt across the board. This could easily destroy the housing market before it has had a chance to fully recover.
There was a time the government wanted the middle class to buy homes. It was felt home ownership made for stronger communities.
I still feel the same way. When a homeowner plants roots in a community they usually plan to stay. They care about their schools and neighborhoods, their lawns are manicured and they take pride in ownership.
In fact, we need the home mortgage interest deduction now more than ever.
The middle class, while it isn't disappearing, is becoming increasingly less visible.
Two-thirds of the benefits from this deduction go to middle class households earning less than $200,000. That's 34 million taxpayers representing more than 90 million citizens who benefit from this deduction.
Take it away and you hurt all of us!
This is a middle class tax shelter that has helped Americans for 100 years. Hopefully it will continue to do so.
George Bailey said it best when talking about his father to Old Man Potter, in Frank Capra's Christmas classic, "It's A Wonderful Life:"
"But he did help a few people get out of your slums, Mr. Potter, and what's wrong with that? Why… here, you're all businessmen here. Doesn't it make them better citizens? Doesn't it make them better customers? You… you said… what'd you say a minute ago? They had to wait and save their money before they even ought to think of a decent home.
"Wait? Wait for what? Until their children grow up and leave them? Until they're so old and broken down that they… Do you know how long it takes a working man to save $5,000? Just remember this, Mr. Potter, that this rabble you're talking about… they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?"
"Well said, George Bailey!"
The mortgage interest deduction has worked for the American middle class for 100 years.
Without it, we all will end up in Potterville.