• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

Should we end the tax deduction for mortgage interest?

Should we end the tax deduction for mortgage interest?

  • Total voters
    11
Kandahar

Kandahar

Enemy Combatant
DP Veteran
Joined
Jul 20, 2005
Messages
20,688
Reaction score
7,320
Location
Washington, DC
Gender
Male
Political Leaning
Liberal
What do you think about the tax deduction for mortgage interest?

NOTE: If you're an anti-tax type who opposes ALL tax increases, you can think about it as being revenue neutral if you like. You can imagine that the tax rate would be cut by a proportional amount if the deduction was ended. I don't want this to be about overall levels of taxation; I want to find out your views of how the mortgage deduction specifically should fit (or not fit) into our overall tax code.
 
I think it's a complete waste of our funds. The federal government forgoes up to $130 billion in tax revenue because of it, and for what? Why are we subsidizing homeownership in the first place? Is there some societal benefit to owning a home as opposed to renting it?

Furthermore, it is a subsidy to mortgage lenders. Since they know that the government is picking up part of the tab, they can charge higher interest rates than they otherwise could. It's also a subsidy to lenders themselves, who take out much larger mortgages than they otherwise would.

The mortgage deduction has certainly contributed to the housing bubble. 38% of capital was invested in real estate since 1980. Ending the mortgage deduction would free up some capital for stocks, bonds, and other forms of investments.

Furthermore, there's the simple fact that our tax code is too complex, and this is one of many pointless deductions that should be ended to simplify it.
 
i like the bowles-simpson plan of generally reducing tax breaks in order to lower and flatten tax rates. yes, the mortgage interest break should be part of that.
 
Tax deductions should be ended period. It just creates a wall of obscure accounting tricks for rich people to avoid contributing to their country.
 
Home ownership is the foundation of wealth. We should continue to encourage it.
 
I don't find the mortgage interest deduction to be worth it. Increased home ownership is a nice bonus, but it isn't worth the serious cost and increase in complexity that the deduction brings.
 
Last edited:
Viktyr Korimir said:
Home ownership is the foundation of wealth. We should continue to encourage it.
Click to expand...

No it isn't. Homes are a horrible investment, compared to the average rate of return you can get in the stock market...or usually even in the bond market.
 
I don't see why the govt. is encouraging you to buy your own home.

Voted to end it.
 
Kandahar said:
What do you think about the tax deduction for mortgage interest?

NOTE: If you're an anti-tax type who opposes ALL tax increases, you can think about it as being revenue neutral if you like. You can imagine that the tax rate would be cut by a proportional amount if the deduction was ended. I don't want this to be about overall levels of taxation; I want to find out your views of how the mortgage deduction specifically should fit (or not fit) into our overall tax code.
Click to expand...

Take away the mortgage interest deduction any time in the foreseeable future and think of it as driving the final nail into the coffin of the real estate market.

My answer is, "No way."
 
MaggieD said:
Take away the mortgage interest deduction any time in the foreseeable future and think of it as driving the final nail into the coffin of the real estate market.

My answer is, "No way."
Click to expand...

OK, but why would that be a bad thing? Home prices and mortgage interest rates would fall, if the government wasn't subsidizing them.
 
Kandahar said:
I think it's a complete waste of our funds. The federal government forgoes up to $130 billion in tax revenue because of it, and for what? Why are we subsidizing homeownership in the first place? Is there some societal benefit to owning a home as opposed to renting it?

Furthermore, it is a subsidy to mortgage lenders. Since they know that the government is picking up part of the tab, they can charge higher interest rates than they otherwise could. It's also a subsidy to lenders themselves, who take out much larger mortgages than they otherwise would.

The mortgage deduction has certainly contributed to the housing bubble. 38% of capital was invested in real estate since 1980. Ending the mortgage deduction would free up some capital for stocks, bonds, and other forms of investments.

Furthermore, there's the simple fact that our tax code is too complex, and this is one of many pointless deductions that should be ended to simplify it.
Click to expand...

Unless you're single, this tax deduction won't benefit you much unless your total annual interst payment + property taxes are over 11,400 (MFJ standard deduction).

I do think it's funny how a lot of cities don't tax... just collect revenue though the interst rates on the homeowners, and then the homeowners can possibly take a deduction for the interest on federal taxes though. Very loopholish. :)
 
MaggieD said:
Take away the mortgage interest deduction any time in the foreseeable future and think of it as driving the final nail into the coffin of the real estate market.

My answer is, "No way."
Click to expand...

I kind of don't think people make the decision to buy a house based on this deduction... I don't see it happening unless you're single. Getting married is better tax incentive than owning a house. The first time home buyers credit was probably more enticing than the interest deduction... I think it was up to 8,000.... wowza
 
Kandahar, doesn't that raise taxes primarily on the middle class? Considering that the HMD is a 2% phaseout and limited to I think $1 million of house (well, not for 2010), the uber rich wouldn't get it anyway. A $5,000 a month mortgage on a million house would disappear at $3 mil of income. And the poor don't buy. So it's levying a tax on the middle class.
 
Kandahar said:
OK, but why would that be a bad thing? Home prices and mortgage interest rates would fall, if the government wasn't subsidizing them.
Click to expand...

Do you have proof of this... I think it's an interesting concept.. :)
 
Troubadour said:
Tax deductions should be ended period. It just creates a wall of obscure accounting tricks for rich people to avoid contributing to their country.
Click to expand...

the biggest deductions or loopholes is the fact that almost half the country doesn't pay any income tax

the rich contribute far more than most-indeed the top 5% pay more Income tax than the rest of the country combined

only a moron would claim that the rich avoid contributing to their country

its the bottom 20% who are more likely deadbeats than the rich when it comes to positive contributions
 
obvious Child said:
Kandahar, doesn't that raise taxes primarily on the middle class? Considering that the HMD is a 2% phaseout and limited to I think $1 million of house (well, not for 2010), the uber rich wouldn't get it anyway. A $5,000 a month mortgage on a million house would disappear at $3 mil of income. And the poor don't buy. So it's levying a tax on the middle class.
Click to expand...

true enough but perhaps the middle class is undertaxed
 
Kandahar said:
OK, but why would that be a bad thing? Home prices and mortgage interest rates would fall, if the government wasn't subsidizing them.
Click to expand...

Kandahar, I'm not at all sure that interest rates would fall. Interest rates are governed and driven by things other than the fact that mortgage interest is tax deductible.

You say home prices would fall. I would agree with you. Why would they fall, though? They would fall because there would be less buyers. And because there would be less buyers, there would be less homeowners. Home ownership, rightly or wrongly, has long been an integral part of the American Dream. Should it be? I think so. Buying a home is a way of fixing one's living costs. When one lives in an apartment or other rental property, one is controlled by, and at the whims of, a landlord. Home ownership promotes personal pride. Encourages having a personal stake in the neighborhood and the schools. The American Dream of a white picket fence deserves to be there. For all that our government chooses to subsidize, surely home ownership is one of the more worthy.
 
obvious Child said:
Kandahar, doesn't that raise taxes primarily on the middle class? Considering that the HMD is a 2% phaseout and limited to I think $1 million of house (well, not for 2010), the uber rich wouldn't get it anyway. A $5,000 a month mortgage on a million house would disappear at $3 mil of income. And the poor don't buy. So it's levying a tax on the middle class.
Click to expand...

No, it's mostly on the wealthy. Keep in mind that you get no benefit whatsoever unless you itemize your deductions, and even then you only benefit above and beyond the standard deduction. This year, the standard deduction is $11,600 for a married couple. So if the interest rate on your mortgage is 4.5%, you aren't benefiting at all unless your mortgage is larger than $257,000.

And even beyond this point, you're only benefiting on the AMOUNT of your mortgage that exceeds $257,000. So if you're in the middle-class tax bracket (28%) and somehow you were able to get such a large mortgage, you'd be saving about 1.26 cents for every dollar of your mortgage in excess of $257,000.

The primary beneficiaries of this are the wealthy. But I think it's kind of a moot point; the primary goal of ending the mortgage deduction isn't to soak the rich (as it could be made revenue-neutral if necessary), it's to end the distorting effects that it has on the economy.
 
My husband and I don't have a mortgage, so the point is moot for me personally. However, mortgage interest is usually the largest single deduction any family has, and to lose it would be devastating to the average family. Even owning a home in this economy is a struggle for millions of people. This is not the economy to strip those struggling to keep a roof over their heads of their single largest tax deduction.

I can see slowly lowering the percentage of interest that can be deducted over a period of ten years or more, but even then this is not the time to start doing so.
 
MaggieD said:
Kandahar, I'm not at all sure that interest rates would fall. Interest rates are governed and driven by things other than the fact that mortgage interest is tax deductible.
Click to expand...

That is one component of it. The mortgage interest deduction is, in part, a subsidy for mortgage-lending banks. If mortgage interest is tax deductible, that increases the demand for mortgages, which drives up the price (i.e. the interest rate). The banks know that the government will foot part of the bill, and so they can charge more than they otherwise would.

MaggieD said:
You say home prices would fall. I would agree with you. Why would they fall, though? They would fall because there would be less buyers. And because there would be less buyers, there would be less homeowners. Home ownership, rightly or wrongly, has long been an integral part of the American Dream. Should it be? I think so. Buying a home is a way of fixing one's living costs. When one lives in an apartment or other rental property, one is controlled by, and at the whims of, a landlord.
Click to expand...

Your costs are far more fixed if you rent than if you own. They are essentially limited to your rent (fixed cost), your renters' insurance (fixed cost), and your utilities (variable cost). These costs are known well in advance, are subject to market forces, and with the exception of utilities typically only change once per year. If you own a home, you have your mortgage (fixed or variable), your home insurance (fixed), your property taxes (fixed), your utilities (variable), the financial cost of repairs/maintenance (variable), the time cost of repairs/maintenance (variable), and the risk that your home will depreciate (variable).

MaggieD said:
Home ownership promotes personal pride.
Click to expand...

I see no evidence of this, and even if it's true, subsidizing personal pride isn't worth $130 billion of federal revenue per year when our infrastructure is crumbling, our schools are failing, and we have a huge budget deficit.

MaggieD said:
Encourages having a personal stake in the neighborhood and the schools.
Click to expand...

That would be a matter for local governments then. If they think that homeowners are better for their community than renters, they can subsidize the mortgages themselves. I don't see how it's a federal issue since (with few exceptions) people aren't going to pick up and move out of the country as a result.

MaggieD said:
The American Dream of a white picket fence deserves to be there. For all that our government chooses to subsidize, surely home ownership is one of the more worthy.
Click to expand...

I can think of a lot better ways to spend $130 billion than subsidizing dreams of white picket fences.
 
Last edited:
DiAnna said:
My husband and I don't have a mortgage, so the point is moot for me personally. However, mortgage interest is usually the largest single deduction any family has, and to lose it would be devastating to the average family. Even owning a home in this economy is a struggle for millions of people. This is not the economy to strip those struggling to keep a roof over their heads of their single largest tax deduction.
Click to expand...

I'm estimating that the average mortgage in the country is about $150,000. The current 30-year mortgage rate is about 4.5%, so the average person pays about $6,750 per year in mortgage interest. This is the amount that's tax deductible...IF, and only if, you itemize your deductions, which most middle-class people do not. And even then, it would net them a couple thousand dollars per year. Nothing to sneeze at, but hardly devastating for most people.

DiAnna said:
I can see slowly lowering the percentage of interest that can be deducted over a period of ten years or more, but even then this is not the time to start doing so.
Click to expand...

I agree that it should be phased out rather than suddenly eliminated. The housing market certainly doesn't need any more shocks.
 
Last edited:
TurtleDude said:
the biggest deductions or loopholes is the fact that almost half the country doesn't pay any income tax

the rich contribute far more than most-indeed the top 5% pay more Income tax than the rest of the country combined

only a moron would claim that the rich avoid contributing to their country

its the bottom 20% who are more likely deadbeats than the rich when it comes to positive contributions
Click to expand...

Yea.. poverty, that's a loophole everybody chooses over being rich and comfortable.. :roll:
 
MaggieD said:
Kandahar, I'm not at all sure that interest rates would fall. Interest rates are governed and driven by things other than the fact that mortgage interest is tax deductible.

You say home prices would fall. I would agree with you. Why would they fall, though? They would fall because there would be less buyers. And because there would be less buyers, there would be less homeowners. Home ownership, rightly or wrongly, has long been an integral part of the American Dream. Should it be? I think so. Buying a home is a way of fixing one's living costs. When one lives in an apartment or other rental property, one is controlled by, and at the whims of, a landlord. Home ownership promotes personal pride. Encourages having a personal stake in the neighborhood and the schools. The American Dream of a white picket fence deserves to be there. For all that our government chooses to subsidize, surely home ownership is one of the more worthy.
Click to expand...

Then maybe the government should do low interest financing instead of banks?
 
Kandahar said:
That is one component of it. The mortgage interest deduction is, in part, a subsidy for mortgage-lending banks. If mortgage interest is tax deductible, that increases the demand for mortgages, which drives up the price (i.e. the interest rate). The banks know that the government will foot part of the bill, and so they can charge more than they otherwise would.
Click to expand...

I can't argue this point as I'm not well informed.

Your costs are far more fixed if you rent than if you own. They are essentially limited to your rent (fixed cost), your renters' insurance (fixed cost), and your utilities (variable cost). These costs are known well in advance, are subject to market forces, and typically only change once per year. If you own a home, you have your mortgage (fixed or variable), your home insurance (fixed), your property taxes (fixed), your utilities (variable), the financial cost of repairs/maintenance (variable), the time cost of repairs/maintenance (variable), and the risk that your home will depreciate (variable).
Click to expand...

I can pretty much count that my rent's going to go up every year depending on the same variable repairs/maintenance costs I would see in my home as well as my landlord's decision that he'll raise the rent "just because." The last risk, that your home will depreciate, is a brand new phenomenon. And a frightening one as well. Puts a whole new spin on home ownership...

I see no evidence of this, and even if it's true, subsidizing personal pride isn't worth $130 billion of federal revenue per year.
Click to expand...

As a Realtor, I see this every time a client buys a home. Probably the happiest stress of their lives.

That would be a matter for local governments then. If they think that homeowners are better for their community than renters, they can subsidize the mortgages themselves. I don't see how it's a federal issue since (with few exceptions) people aren't going to pick up and move out of the country as a result.
Click to expand...

That's an interesting take. Here in Illinois, several communities are (were, not quite sure now) subsidizing home ownership in their towns with a $15K downstroke provided the homeowner stayed in the home for five years. You may have a point.

I can think of a lot better ways to spend $130 billion than subsidizing dreams of white picket fences.
Click to expand...

Oh, yeah. And a lot worse.

I think you've made some excellent points, actually. I would still be very nervous about making any such change at the present time...maybe gradually phasing in a change, but not cold turkey.

When we're looking for all kinds of ways to save money, it's unfair to take anything off the table. I'll have to think some more about this...good post.
 
SheWolf said:
Then maybe the government should do low interest financing instead of banks?
Click to expand...

a thousand times no. we have that already, it is called Fannie Mae and Freddie Mac, and it has put us hundreds of billions into the hole.
 
You must log in or register to reply here.
Back
Top Bottom