We're doing a mortgage refi at 3.75% -- someone tell me why that interest should be deductible?
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Anonymous
| The Treasury estimates the cost in 2012 at $130 billion. Budgets are about trade-offs--this is really the best use of that $130B? |
Anonymous
| It shouldn't. It's the government's subsidy for behavior it wants to encourage. |
Anonymous
| Because the mortgage interest dedeuction is a major incentive for people to buy homes instead of renting, which has many positives for neighborhoods and schools. To discourage homebuyers right now when there is another huge wave of foreclosures coming (homes that were in limbo due to the recently settled litigation) and the real estate recovery is fragile and generally lags other economic indicators would be foolish in the short term.. |
Anonymous
| We can just move it off budget like Ryan did with other expensive things. Done next problem. |
Anonymous
| B/c if we don't spend the money, rich people get more tax cuts and move the money offshore. |
Anonymous
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The mortgage interest break should be a credit and not a deduction, and it should be capped at say, $5,000.
My reason for arguing this is if you're going to have a subsidy for housing, it makes more sense to make it more available lower down the income scale rather than concentrate its benefit at the higher end. That's not intended to be a 99%/1% comment, rather a practical observation. Right now it's possible at today's interest rates to buy a starter home in much of the country and get no benefit at all from the mortgage interest deduction, simply because the interest and taxes you pay aren't enough to allow you to itemize your deductions. Say you buy a $200,000 home in the state of Tennessee. That buys you a lot of house in much of Tennessee. The monthly interest payments at 3.75 are $926, but $300 of that is principal reduction (and not deductible). Even if you assume taxes are $200 a month, you're still looking at only a deduction worth $825 per month, or $9,900. Tennessee has no income tax so there's nothing else to deduct there. The IRS standard deduction is $11,900 for 2012, which is more than the interest and taxes total. So, the taxpayer claims the standard deduction and gets ZERO benefit from the mortgage interest deduction. You can see the same scenario play out around the country, not only in the states with no income tax (Texas, Wyoming, Florida, Nevada, Washington, Alaska), but also where you might buy homes for $125,000 or so and have a perfectly nice house. Back to the original example. If you trade the deduction for a credit, then the hypothetical taxpayer gets to subtract $5,000 from their total federal tax bill AND claim their standard deduction. The flip side is people around here, who routinely deduct $50,000 a year in interest resulting in a tax savings of around $15,000, would see a $10,000 per year tax increase. The reason I think it's good policy is it would help the housing recovery. It may not be great TAX policy per se, but I argue that if you're going to have a housing tax subsidy, it's better to structure it this way. |
Anonymous
| pp here: to clarify, of course the hypothetical taxpayer could have other deductions, such as gifts to charity, that may allow them to itemize, but the point still remains that if your mortgage interest and property taxes don't exceed the IRS standard deduction, you're getting little to no benefit from the home mortgage interest deduction. |
Anonymous
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Easy answer: Most mortgage holders cannot refinance at a rate like that.
More complex one: sure, that is questionable policy. As is having close to half of all adults pay no income taxes. Good policy is not about sound bites, but painful decisions. And our tragedy is that neither party seems serious about it. |
Anonymous
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OP here..a number of great replies and I agree w PP. Ben has driven rates near zero, I get to borrow 30 year money at, after tax, a zero real rate of return (inflation adjusted based on normalized inflation rates) and it's another sop to the upper middle class at huge cost to the treasury.
But using dcum as a sampling, how can a pol get serious when all I read here is either "1/2 of American pay no income tax" which ignores payroll tax which is largely the same thing so quite disingenuous or "the rich need to pay more" which appeals to our envy but really doesn't get to the problem. So, I get to deduct this interest, the IRS subsidizes my gifts to charity, I have zero incentive to shop around for efficient medicine, my kids play on brilliantly-lit fields here in MoCo at all hours in all conditions at various plex's, and the solution is always---someone ELSE needs to pony up. (sigh) At least here in MD we have a plan--more casinos. Now there's Federalism at its best as we have smart policy bubbling up from the states. Greece has a national lottery--how long until we get one? |
Anonymous
| Yes, can we PLEASE not hear that ridiculous "40% of Americans pay nothing in taxes" line ever again? This is one of the most educated regions in the country, people. THINK. |
Anonymous
| I think there are many many benefits to subsidizing home buying through the mtg interest deduction. BUT, are are broke and cannot afford it completely. I'd probably be ok with just dropping it down to your first home and capping the principal at $500K. That would save a good bit of money but not hurt the homebuying market. |
Anonymous
In 2011, 46% of households paid nothing in federal income taxes. Why is it wrong to say so? Those people still pay sales tax, and in some, but not most cases, state taxes. So they have some taxes, but not federal income taxes. |
Anonymous
And in Virginia they pay sales tax on food they buy at a supermarket. That just doesn't seem right. |
Anonymous
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OP, in theory I have no problem getting rid of the mortgage tax deduction but in practice it would hurt a lot in the short run. If we could phase it in I would be willing to do it.
It really is such a free ride for homeowners. I love how people moan about the poor getting handouts when the mortgage tax deduction allows me to deduct business trips, my internet connection and computer gear and even books I buy related to work. |
Anonymous
I didn't realize how high the sales tax rate is in most states. For example, if you live in Texas, you are paying a little over 8%. If you are poor, you are paying that on all of your disposable income because you aren't in a position to save. 
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