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View Full Version : Interesting article, should mortgage interest tax deduction be phased out?




Becker
10-29-2011, 03:04 PM
http://www.costcoconnection.com/connection/201111?pg=22#pg22

on the "YES" side is Reason foundation writer Anthony Randazzo
http://reason.org/news/show/eliminate-mortgage-interest-deducti

http://reason.org/files/mortgage_interest_deduction.pdf

Roy L
10-29-2011, 09:50 PM
http://www.costcoconnection.com/connection/201111?pg=22#pg22

on the "YES" side is Reason foundation writer Anthony Randazzo
http://reason.org/news/show/eliminate-mortgage-interest-deducti

http://reason.org/files/mortgage_interest_deduction.pdf
The mortgage interest deduction does not make housing more affordable, it just makes housing prices higher and encourages debt. Most of the benefit goes to wealthier people who are already paying too little tax.

Becker
10-30-2011, 12:49 AM
The mortgage interest deduction does not make housing more affordable, it just makes housing prices higher and encourages debt. Most of the benefit goes to wealthier people who are already paying too little tax.

I am not sure about the claim that it benefits wealthier people, but I definitely agree the benefit to most people is negligible and illusory, and encourages debt without actually decreasing it.

Zippyjuan
10-30-2011, 01:19 AM
I would think that either as a percent of income or as a percent of total taxes paid, the mortgage deduction probably benefits middle income people more. Lower income people are first less likely to even own a home and be elgible for the deduction and secondly would likely not need to take advantage of it since their standard deductions would take care of most of what they would have otherwise pay in taxes. On the wealthy end, I suspect that while they do take the deduction, they also have many other deductions whereas those in the middle incomes would have the morgage interest deduction as their primary one (along with say their IRA deduction- these are the main two I use). In dollar terms, the wealthy will save more money but they also have more money to begin with (so they can afford to buy more expensive homes). They are also more likely to itemize on their tax returns. But your are both probably right that the deduction plays little factor in people's decision to buy a house in the first place and the actual money savings per month are not significant. I don't think it adds much to the price of homes either.

Found some info:

http://www.taxfoundation.org/news/show/1341.html

There are four key factors causing the home mortgage interest deduction to be more valuable for high-income earners than low-income earners.

First, to claim the mortgage interest deduction, taxpayers must itemize when filing federal tax returns, rather than taking the standard deduction. Because of the progressive nature of the federal income tax, the value of itemized deductions rises as income rises. Those facing the highest marginal tax rates—high-income taxpayers—receive a much more powerful tax benefit from tax deductions than low-income taxpayers receive. As a result, low-income taxpayers are less likely to itemize, placing the benefits of the home mortgage interest deduction out of reach. This factor is enhanced by the gradual elimination of the phase-out on itemized deductions—known as the “Pease provision”—that currently limits the amount of itemized deductions high-income individuals can claim.

Second, low-income taxpayers tend not to own homes, especially those who are younger and live in urban areas. Additionally, many low-income retirees tend to have less interest outstanding on home loans—i.e., their home mortgages are “paid off”—and rely primarily on Social Security income which is not included in AGI. This reduces the tax benefit of the home mortgage interest deduction to them.

Third, high-income earners tend to have more valuable homes. In general the greater the home value, the greater the interest payment on the associated mortgage. As a result, the President’s Advisory Panel on Federal Tax Reform has criticized the home mortgage interest deduction for primarily encouraging the construction of larger homes, and not necessarily broadening home ownership among middle-income Americans.2



Despite the claims of various industry groups that the home mortgage interest deduction is an important factor promoting broad-based home ownership, IRS data show the bulk of mortgage interest deductions are claimed by a relatively small fraction of Americans with incomes well above average. As a result, it is likely that the deduction primarily encourages larger and more expensive homes among a relatively small share of taxpayers, rather than promoting broad-based home ownership among ordinary Americans.