The Deficit Commission’s Trial Balloon: A Few Good Ideas, and Two Horrible Ones that Deserve to Die
Cut income taxes, fine, good idea. That will make family budgets a little more liquid, which should spur economic activity, which tends to increase federal revenue.
But repealing mortgage interest payment deductions amounts to a direct attack on the American dream of home ownership. The fact that we have property taxes at all already undermines the concept of ownership; killing off the biggest housing tax break greatly reduces the incentive to buy in the first place.
I’m not an accountant, but like nearly every other adult in the country I’ve done the calculations on home ownership. Owning a home tends to cost more than renting in the short term in upkeep and so forth, but it’s beneficial in the long term. Over a year’s time, you get a tax break that you don’t get if you rent. And over a longer term, your home is an investment that tends to appreciate in value, helping one build future security.
Ending the mortgage interest deduction amounts to a hefty tax hike in the short term, and that makes your home harder to sell since the purchase calculation become less favorable to potential buyers, which makes it a less viable investment over the long term. Given the housing crisis the nation has suffered over the past few years, the last thing we should do is introduce a tax hike that makes owning a home less attractive. But ending the mortgage interest deduction does just that. It will end up driving some who are on the margins now from the homes that they’re barely hanging onto.
As for raising gas taxes …where to start? To begin with, both raising the gas tax and ending the mortgage interest break hurt those who can afford it the least, the most. Also, raising the gas tax will make everything more expensive to manufacture and move around the country to points of sale. We already have the idiotic insistence on ethanol making food prices rise, we don’t need a gas tax hike to add to that. If the commission was looking for a way to freeze up an already weak economy, they couldn’t have found a better one than jacking up the gas tax.
It’s tempting to see these two ideas as less about deficit reduction and economic efficiency than about enabling some other long-term strategic goal. In the case of the gas tax, it may really be an attempt to make the price of gas skyrocket to push toward “green” jobs etc. It’s not like there’s no precedent for that.
How about instead of hiking gas taxes, we sell off federal energy exploration leases? How about we cut all federal funding to groups like Planned Parenthood, public broadcasting, the National Endowment for the Arts, and all other similarly questionable entities? How about we de-certify public employee unions, as Mitch Daniels has done in Indiana, to reduce the pressure to keep paying federal workers more and more while the private sector lags? How about we just cut federal spending across the board? How about a little common sense?
The best thing we can do to stabilize and repair the country’s fiscal health is to get rid of the current administration, but that’s still a couple years off.
Once again the factor that central planners leave out is the fact that people alter their behavior in response to government action. Like you mention, these proposals are a disincentive to home ownership and driving patterns would necessarily change.
No mention of defunding the UN? No mention of defunding most foreign aid? To hell with pay freezes, I want a reduction in federal salaries. Let’s make it progressive. The more you make, the more they cut. Pay cuts for the Rich! Doesn’t that narrative work for liberals in the tax arena?
People at the high end of the pay scale can take a 20% decrease, while those at the bottom of the latter get a small increase, with a sliding scale throughout.
And we just plain have too many federal employees. The military is the last place I’d cut, but there are too many desk jockey Generals and Admirals at the Pentagon, too.
But ultimately, Commissions are formed by cowardly politicians as cover for the actions they secretly want to take, but for which they haven’t the stomach to take the heat for.
Can you say 9/11 Commission? That worked out real well.
Alert: Yes, Give a tax break to the rich, which will cost Americans trillions of dollars, and then cut Social Security and Medicare to pay for it, should be an abomination to the people. I do not believe Pres. Obama will sign off on this insult, Nancy Pelosi has alredy spoken with a resounding No! God hellp this country!
so … learn how to calculate present value and future value and figure out some time that the social security taxes the ‘rich’ pay do not return what they do to the lesser earners. Taxing those who accumulated wealth yet again or limiting their benefits is yet another rip-off of the most productive.
What I see in this list is two-fold: first, they’re talking in the billions … we’re 13.7 trillion in debt, plus SS and medicare add over 50 TRILLION …
Second … if you elimate the deduction for mortgage interest you HAMMER, HAMMER house prices. Think about another huge % of homes into foreclosure. Stupid idea.
STOP SPENDING … cut entitlements, let people live by what they provide to themselves. This redistribution and recklessness has to stop. Need socialism? move to a socialism country and live with the consequences.
Angel,
You are under this impression that the money people make is the governments in the first place. It doesn’t cost Americans money when you lower taxes because it isn’t their money to begin with. Look, the reality is that we are either going to have big pain now or massive collapse later, and no wishing it wasn’t so is going to change that. Americans need to grow up and realistically examine and learn economics, not the ridiculous economic theories that are currently taught and have been causing the current disaster we are experiencing. The fact that not one Keynsian economist predicted this current mess (while others of the Austrian School nailed it) should discredit them completely in the realm of policy. The fact that dishonest lightweights such as Krugman get it wrong time after time (in 2002 he was calling for a real estate bubble and now he’s calling for a government bubble) and idiots still read him and post his articles speaks volumes to the state of economic knowledge today. Again, people are going to learn this either the hard way or the really hard way – reality is cruel at times, but it’s also inescapable. To make this as simple as possible, there is no something for nothing and you can’t create money out of thin air without massive consequences.
There is one thing conservatives/libertarians don’t seem to understand, this isn’t the wild west with everyone for themselves…this is a society that has banned together for the common good and the common good is not free so take off that coonskin cap and join modern society.
We won’t have real deficit reduction until everyone realizes that *their* sacred cows have to be up for the slaughter.
That bears repeating:
We won’t have real deficit reduction until *everyone* realizes that *their* sacred cows have to be up for the slaughter.
We’re in deep, deep, abysmal-depth doo-doo, debt. We must do everything we can to fight it.
Now, I don’t know whether it makes economic sense or not, and it would certainly crash the already desperate housing market, but it shouldn’t be rejected outright without a good look first. Any time the government picks winners (homeowners) and losers (everyone else), it distorts markets. Removing the tax break would remove government distortion–which I believe would be a good thing.
On a personal-preference level, I’d love to see some form of flat tax with a single large personal deduction (for example $9,000 per person, which would mean a family of four making $36,000 would pay no tax.) If we went to that kind of a system, then all other deductions should go.
I’m not sure that removing the home mortgage deduction would crash the housing market. Canada does not allow a deduction for home mortgages and their rate of home ownership is as high as ours. What we should do is go to a flat tax with NO deductions, broad-based and with a low rate.
There is a difference between a non-subsidized, shall we say “natural” marketplace, and a formerly-subsidized unnatural one. The US market has been distorted for years by this deduction. The system has been built around it, and should it be removed, there would necessarily be a period of adjustment–perhaps a painful one.
My understanding is that Canadian mortgages typically have a 15 year term. That means buyers have to build equity much faster than Americans do. So during the transition, limit the amount of mortgage interest deducted to the equivalent of a 15 year mortgage for the same principal amount taken at the same time. In year 16 the deduction would be zero. That puts the deduction to work for those who are investors in their homes, not speculators. Too many Americans have bought too much home, more than they can afford. This would restrain excess while helping reasonable investment.
It’s a policy change that should be considered, but it should be delayed. I believe a significant element of the recession is that people feel less wealthy when the equity in their homes diminishes and they spend less. To the extent that eliminating the home mortgage deduction would contribute to home equity reduction, it would prolong the recession. The debt crisis is simply overwhelming without a robust recovery, so the whole idea may be counterproductive.
P.S. My home is paid for, no deductions for me.
Those are two of the dumbest ideas that I have ever heard, but if the plan is to make all Americans serfs then they are absolutely brillant. Have everyone one renting (probably from the government) and unable to get away because gas is $5 a gallon. You want to destroy what is left of the economy enact those two brainless ideas.
If you want to make this country work again, then end the trade deficits (with targeted tariffs) and slash corporate tax to 10%. Companies would be falling all over themselves to do business here to enjoy the low taxes and protected markets.
As for the bloated and overpaid government, 10% budget or staffing cuts every year until the budget is balanced. This would be across the board and including the military with all those high price flag officers and huge staffs. Nothing like shock and awe to put things back to straight. Of course the governmental beast will not go out easy, but starve it must.
Now your talking. A hiring freeze on government workers and a 10% reduction each year can be done and it allows the people on the ground in the offices to make the decisions where the cuts should be made and which ones will have the least impact. The only problem is with the federal professionals who make it their careers to grow government, they will always take the cuts where it hurts the most in order to get citizens to whine and cry. Then the money gets reinstated. If they had an incentive for reducing their budgets and staffs then they would be more inclined to do so. The federal staffing structure is such that supervising more people equates to higher pay. If we could get away from the arcane staffing rules and the like then we might see real progress in the reduction of the federal government.
Home mortgage interest should never have been deductible in the first place. But ONCE IT IS, you’ve created a huge constituency, one very difficult to end because people have made important financial calculations based on this deduction. Yet another example, and there are thousands and thousands, of the government’s distorting the marketplace. They will never learn and continue to screw up.
Agreed.
Renters–typically the young, singles, and the less wealthy–should not have to subsidize homeowners. America should also not be creating massive market dislocations by policies like this.
In California, you would make more money buying a house than not (even without appreciation and negative-equity) purely because of the homeowner tax credit and mortgage interest deduction. Because interest was deducted, why would anyone bother to get a responsible mortgage that paid down principal?
But once again, the “conservatives” cry to big momma government when their particular form of welfare is cut. This injustice should end, but it won’t.
Well said Aaron. As a middle-aged renter, I thank you.
One thing renters forget is that the landlord gets to deduct the interest he pays. Therefore your rent is reduced somewhat by the tax benefit he receives.
Sam,
The deduction to rental property owners is a business expense (similar to advertising and maintenance) thus there is no need to remove that deduction. That said, if people flock from ownership to rentals, there will still be a significant increase in rent. This, in combination with lower housing prices, should reach a new equilibrium.
“Renters–typically the young, singles, and the less wealthy–should not have to subsidize homeowners”
Class warfare talk.
Am I subsidizing you because you have kids and I don’t?
Am I subsidizing you because you have student loan interest and I don’t?
Am I subsidizing your next move when you take a deduction for it?
How about the other 10,000 examples?
When I hear someone say something like “renters subsidize homeowners”, it’s clear that they are conservative except when they think they are getting the short end of the stick; then they are ‘liberal’.
The facts are that the tax code has thousands of clauses that people have structured important aspects of their lives around. Whenever it’s messed with for ANY REASON, there will be winners and losers, and some disruptions can be catastophic….like taking away the mortgage deduction would be for some people.
Yes the tax code should be simplified, but it should only be done gradually, and with consideration to how disruptive it is.
And taking away something as significant as the mortgage deduction isn’t tax-code simplification, it’s a TAX HIKE, pure and simple.
Renters do in fact subsidize homeowners.
Is there a rent deduction on federal income tax that is equivalent to homeowner deduction or mortgage interest deduction?
Because if there isn’t, then it it means that renters are paying more per-person taxes than homeowners and identical services, all other things considered.
Keep thinking it Aaron.
Meanwhile, I’ll kick up my whining about subsidizing your kids, student loans, business expenses, moving expenses, capital gains, moving expenses, child care expenses, tax credits, lower bracket, 401K deductions, medical expenses, state tax payments, professional journals, auto tax payments, unemployment compensation, disability payments, and the thousands of other things I subsize for you.
sheez. get a brain.
Then proreason, I am sure you will support the All People Named “Aaron Bernard” Pay No Income Tax Act of 2011.
As I am sure you have heard, if this act passes, all persons with the name Aaron Bernard receive a 100% tax cut.
It isn’t a subsidy, it’s a tax cut baby!!! Fair and balanced!!!! Thank you for your support.
I am kinda dum, but the mortgage deduction is more about the banks making more money and less about helping with home ownership.
If everyone could borrow money at the rate banks are getting, a deduction would not be needed.
No, banks are not bad, they are a business.
Would you all please explain to me why you think it’s right to force people who cannot afford a house (and, therefore, cannot take the mortgage deduction) to subsidize those who can?
I paid off my mortgage and took full advantage of the deduction for the 30 years it took to do that, but that still doesn’t make it either fair or right.
It’s called manipulating behavior with the tax code by people who “know best.” Except they don’t, and never will.
Well, if you are a renter, your landlord should get a deduction for interest paid, and all other things being equal, likely passes the benefit along to the renter in the form of lower rents.
How wonderfully pious of you to call for the end of the mortgage interest rate deduction. So you love the idea of hammering millions of your fellow citizens with higher taxes, and cratering the already bad building and rela estate business sectors?
If you actually think that income taxes will go down to match the loss of the mortgage interest deduction, you will surely want to invest in my unicorn ranch.
Again we come back to the belief that all your income belongs to the government, and they are gracious enough to let you keep some of it. It DOESN’T. It belongs to YOU, and the government STEALS what it wants from you.
You aren’t SUBSIDIZING anyone when they pay less taxes. You only subsidize them when you give them monies and benefits that they don’t pay for.
I guess those of us in higher tax brackets are subsidizing people in lower tax brackets. So, all of you earners that aren’t in the top brackets, well, screw you. Your taxes should be raised to my level. I’m sick of ‘subsidizing’ you.
See how that works? See how easy and insidious it is when you approach it from that angle. It enables class warfare, which we see in these posts (‘renters are subsidizing homeowners, screw the homeowners!!!’)
The mortgage interest deduction is not a SUBSIDY. It is people KEEPING more of what is rightfully theirs. Just like any other tax break (name it). A tax CREDIT is a subsidy, if that credit takes you from ‘paying taxes’ to ‘not paying taxes.’
The truth is, spending won’t be cut, but they’ll raise taxes and spend the extra money (assuming it actually generates any new tax revenue) on more crap. And then we’ll repeat it again.
The government needs to prove it is serious about spending cuts by ACTUALLY doing it for a period of time before they even talk about removing tax breaks under the current tax law.
Would you take their word that they will secure the border in exchange for granting amnesty to 20+ million illegals? Why is this any different. We dictate terms to the government, not vice-versa.
“You aren’t SUBSIDIZING anyone when they pay less taxes.”
You are subsidizing them because the benefit pool is socialized.
Otherwise, why shouldn’t we just give a 10% tax benefit to everyone who lives in a “blue” state…. Would you really believe that “red”-staters weren’t subsidizing government transfer payments to these people?
It’s a subsidy–get over it. The fact that the government shouldn’t be taking the money in the first place is irrelevan
The more you tax gasoline, the more everything costs, and the less competitive our products are globally. Cheap energy makes for better-value products. They KNOW this, by the way.
I disagree about the home mortgage deduction. We did not have this before the Income Tax existed, and folks bought homes. The homes were far cheaper then, in comparison to then wages.
The fact is, you do NOT get a benefit from this. This is factored into the price of the house. The Seller, the Realtor, the Banker, AND THE GOVERNMENT (property taxes), they all gain this benefit, not the buyer or the current owner.
To understand this better, look at college tuition. The more scholarship or loan money you qualify for, the more the price goes up. Both industries work the same. They get all your financial information, then they tell you the price.
Wiping out the tax-incentive will deflate the costs of homes. The prices will come down. You will pay less property taxes, and your home will sell more readily. It will also limit folks using their homes as piggy banks via lines of credit, until they actually have REAL equity, because the artificial price propping will be reduced. They will be more loathe to plunder their own real wealth.
The 16th Amendment, the income tax, needs desperately to be repealed, because it is a source of more Power for the government. It will always get abused, sooner or later.
Technically, though, the Constitution already provides this power to Congress. The Amendment was never really necessary in the first place, but the court kept striking down the legislation in the 1800′s, because they always wrote it badly. I think it is time to forbid it completely. It is time for a national sales tax only. No income tax, no corporate tax, no estate tax, no gift tax, no capital-gains tax, no employment taxes. The government should not be first in line for your paycheck!
While we are at it, let’s kill the minimum wage law, which is an unconstitutional seizure of the employer’s property (money). No insurance mandates, either. Let me make my own deal with my employer.
Here’s another idea: If the government wants to put a lien on your property, make them go through civil court, file suit, like everyone else. For them to impose a lien by fiat without a court hearing is to make me guilty until proven innocent. Nor should they be allowed to seize your property by fiat, either. That’s what bankruptcy court is for.
Furthermore, they should not be first in line to get paid if your property is sold to pay debts. They do not get to be the bully who cuts to the front of the line. They are just another creditor, like everyone else.
There was much noise about the government cutting out the debt-holders in the GM takeover. Why was anyone surprised? It is how they act in every other aspect of our lives. They push aside, even wipe out, all previous claims. Ex post facto law is their modus operandi.
I think instead of raising the gas tax they should lower it, then people would tend to drive more and not to mention the decrease of products that should follow!
When I drive anywhere I try to combine trips in such a manner to get the most use of the fuel that I use but if gas prices went down by .15 or .25 cants I would be more likely to drive more often perhaps without combining errands.
super analysis!
Notice how these commissions are always incrementalist? Our problems can be solved with a few bold moves rather than hundreds of tweaks. Paul Ryan’s work, though still incrementalist, is much more interesting than that of this panel’s.
I have always felt that everyone should pay something in taxes. I have an acquaintance who feels free to spout off about government but has not paid any taxes for years. She even gets money back. People like her should put money where their mouth is.
As long as Obama stays in Washington, we’ll save $200 million per day. That’s what his little trip to INdia is costing. Thank god we have Fox News to keep an eye on this stuff for us, or we’d never know what is REALLY going on.
I will give up the mortgage deduction when everyone pays, because my mortgage makes jobs possible like the guys building my house. I have said it time and time again, that we need to scrap the tax system and have a head tax that every American adult pays. This would put an end to class warfare and set the federal budget.
We won’t be able to afford huge social programs, but then again every American would have more in their paycheck because there would be not income tax, FICA, or any other big government pick pocketing. Sure we will have to do without huge federal programs and we will really have to decide what we value. Military we could have one, but we won’t be spending ten times what anyone else in the rest of the world does.
You didn’t mention that the proposal includes “capping” federal spending at 21% of GDP. 21%!!!! That would represent the heaviest tax burden Americans have ever endured, a greater proportion of the productive economy devoured by the Borg-state. The highest ever govt revenues to date were 20.6% in 2000, at the height of the dot-com boom.
My understanding is mortgage deductions would only be eliminated on primary residences costing over $500,000 and on second homes. I could be wrong, but that is what I heard reported.
I don’t like the 15% tax on gas but I’ll take it with everything else in the plan. But, only if every little piece of this is passed.
The only thing I don’t like is leaving Obamacare in tact. Replace that with a standard deduction for medical insurance premiums and I’m all for it.
Mostly it is fair. You gain and loose. It affects everyone and it rewards the economically prudent and the hard worker.
Of course if I was ‘king of the world’ I would eliminate taxes on savings accounts, Certificates of Deposit and long-term Capital Gains on stocks held for more than 10 years. If you want to social engineer or reward prudent investing that would do it. But, I am dreaming out loud, now.
The problem with the home mortgage deduction is that the game is in play for millions of people under the old rules.
Eliminating it for new home purchases is one thing — it can be factored into decisions; eliminating it for current mortgage-holders is an attack upon decisions previously made; a breach of faith with the American people who played by the rules.
Incidentally, I haven’t seen any indication that landlords would see their mortgage deductions limited in any way. Is it time to negotiate a sale-leaseback of my home?
Social Security is a ponzi scheme. (As one wag said, when Madoff does it, its called fraud, when the Federal government does it, its called Social Security.) I would eliminate Social Security, although I would do so over a very long time period so that no age cohort is hurt too badly. One way is to raise the retirement age a few months at a time as age-cohort turn 21. For example, those turning 21 in 2011 would see their retirement age go up by a few months; those turning 21 in 2012 would see their retirement age go up by another few months, and so forth. Eventually the retirement age will exceed the oldest person in the population, and Social Security will disappear.
As to eliminating the mortgage deduction, I don’t think the long run consequences will be all that bad, but the short run consequences will be, especially during this recession. To ease to the adjustment process to long run equilibrium (and ease the pain of the adjustment) I think a two step process should be implemented. The first would be to move to a flat tax — one marginal rate for everyone irrespective of income, and one large deduction for every family member, and no other deductions. (That is, eliminate Schedule A.) But as with Social Security, the elimination should occur in stages, possibly over a 25 year period. As we eliminate Schedule A, we move to the flat tax.
Then we come to the gasoline tax. If the tax is meant to be a user tax to improve streets and highways, then I’m fine with it. If it is to subsidize other things (such as hare-brained rail schemes, whether inter or intra-urban) or to subsidize other parts of the budge, then I would adamantly oppose it.
Finally, a comment on Sandy Salt at @3 about ending the deficit. We have a deficit because our currency is the world reserve currency. Ending, or trying to end the deficit would send the world into a recession. Also, remember, we are not at risk by the Chinese or others holding our debt; they are. We get real goods and services and they get little pieces of paper. If they don’t behave, we can walk away from the paper and they can use it to wallpaper their banks with it. Note how irate they became when Bernanke said he was going to buy $600 billion in US bonds. They know that such an increase in reserve money would inflate away the value of the US bonds they hold. Their billions would become millions. Lastly, should our deficit become very worrisome to the rest of the world so that the US dollar is no longer a reserve currency, then whether we like it or not, the deficit will disappear on its own. That is the wonder of flexible exchange rates.
Good luck with confining the proceeds of a usage tax to maintaining or re-building infrastructure! I mean, get real! Any such revenues will go straight into the government’s gaping maw, where those jackasses will spend it to buy votes.
I am about to collect Social Security, and I agree that it needs to be adjusted. They should start increasing the retirement age a month a year starting next year or 2012. Younger workers need to be transitioned to a private investment account based system
I like the idea of “progressive” pay cuts for Fed employees. What Lefty could complain about that? We need to turn government retirement programs into individual investment accounts. Public employee unions should not be allowed to participate in political campaigns in any way. A clear conflict of interest for all involved. I’d like to abolish them, but this is a good compromise.
In general our laws favor unions over employers and need to be adjusted back to neutral.
I think the standard and personal deductions should be smaller so more people pay taxes and have a stake, but cut the rates for the first and second $10K to 5% &10% respectively, and then 15% & 20% as the top top brackets with fewer deductions.
Abolish the corporate income tax and tax dividends as ordinary income for American taxpayers and at the top income tax rate for dividends paid to non-US taxpayers.
I’d replace the mortgage deduction with a flat subsidy of $1000 – 1500 for lower income homeowners and phase it out for higher incomes. The current system provides little to no help for low income home buyers and no help to old people who have paid off their homes, while giving huge amounts of aid to those who are in high income brackets and have very little equity in their homes.
Instead of a gas tax, tax imported oil. $10 barrel the first year and add $2 each year after that, forever, until we quit importing the stuff. Use all the money collected to finance building nuclear power plants.
We also have to cut regulations and lawsuits dramatically. Abolishing the EPA seems like a twofer; saves money and reduces regulations all at once. We managed to regulate polluters and enforce regulations before the EPA, we can do it after they are gone.
We need to have tariffs on goods from countries using unfair trade practices or mercantilism to gain an unfair advantage over US firms.
While the mortgage interest deduction might be removed for homeowners, it would not be removed for investors. Why? Because mortgage interest payments are deductible as a business cost for owners who rent their properties. The only way to stop that would be to remove interest payments as a deductible cost of business, and good luck with that! So there would be an incentive for the wealthier segment of the population to become ever more heavily involved in investing in houses as rental properties. The progressives out there probably don’t think that is a good idea. But, hey, check with Barney Frank and Chris Dodd to see if they are on board with the idea!!
eliminating mortgage interest deduction is a great idea, but it doesn’t go far enough. a better policy is to eliminate the deduction for *any* interest paid. further, any interest *earned* should be tax free, as should dividends.
we need to be a save & invest society, not a borrow and spend one. if this hits housing, so be it, houses will become more affordable if nothing else. long term, it’s just better policy.
From an Austtralian perspective, the very idea that you can get tax deductions for your mortgage interest payments on your own personal home is almost incredible.
How can such a deduction possibly be justified? It is not an expense that you incur as part of your ability to earn your wage.
So, in your country, if you could get a loan for a million dollars to buy a house, the state would give you a deduction for your interest payments? Weird. By what possible right should your community be obliged through their taxes to subsidise someone for their own personal satisfaction?
And you guys carry on about not being socialists!
Cheers
Greg J from Melbourne, OZ
Changing the Mort. Int. Deduction now is both a bit unfair, and bad economics. The main need now for huge inflation is to reduce the number of houses with mortgages greater than their nominal value.
There’s no easy nor fair way to do this, but that’s needed for the economy — far more needed then the 27 Big Banks bailed out by the TARP welfare- for- the- rich.
Instead of interest deduction, there should be flat 50% tax credit, for all house payments, up to maximum (last years median taxable income, about $40k) per year, with a lifetime maximum of 10 years total (about $400k).
This reduces the flip incentive, and means in some 10 years, rich folk like Kerry ($50k/year now in deductions) will have used up their lifetime amount and be out of it.
The main reason they’re even talking about getting rid of MID, is to use it as a bait and switch — if you don’t want to give up MID, then we have to raise taxes.
No.
No increase in any taxes.
Lower pay of all Fed employees (on a progressive basis! Those making more than median get 10% cut of that amount; those making more than 2x median get a 20% cut of that amount).
Freeze on hiring full time staff, only hire part-time employees now.
Start means-testing for all gov’t benefits.
Regulation holiday! Freeze against any new regulation (require that the exact wording of a new regulation be explicitly approved).
Holiday on regulation enforcement for 2 years!
Let small companies start with red-tape, and let them have time to develop their idea for a product or service. If it’s good enough to last in the market, then they start fulfilling other, out-of-contract regulations.
Alert: Yes, Give a tax break to the rich, which will cost Americans trillions of dollars, and then cut Social Security and Medicare to pay for it, should be an abomination to the people. I do not believe Pres. Obama will sign off on this insult, Nancy Pelosi has alredy spoken with a resounding No! God help this country!
Yes. We need to eliminate the home mortgage deduction. Yes, that will be painful at first, but over time we will get used to it. Why should we subsidized home ownership? If it is a good thing, people will pay for it. When I went to purchase my first home, the Realtor said that deduction would be washed out by local property tax. Besides, given a deduction, as earlier poster noted, there is no incentive to pay off loan. And people will buy bigger than what they need, knowing part of it is subsidized. (I will make the same argument for eliminating the corporate income tax: If a corporation knows that 30% of this expense is deductible, they are more willing to spend frivolously, which is bad for everybody.) Besides, I am now a renter. Why should I subsidize homeowners?
No mention of ending Drug Prohibition?
I am a homeowner, and I could care less about the mortgage interest deduction. There are two reasons for this:
First, I bought a relatively cheap house (about $100k) at a decent interest rate. The interest portion of my mortgage payment is around $500/month, or $6000/yr.
Second, I am married, and the standard deduction for married filing jointly is just under $12k. Since you cannot take both the interest deduction and the standard deduction, we would need to find another $6k just to match the standard deduction. Even if I were able to exceed that amount, I am only looking at a tax savings of perhaps 25% on the amount that exceeds the std deduction. Deducting $13k vs $12k would save a whopping $250. I’ll gladly take that $250, but that isn’t going to affect my decision to buy a house. I am sure that there are those for whom it is a significant consideration, but I know there are many people who, like me, find it irrelevant.
The rate of home ownership in Canada is approximately the same as the U.S.; yet, mortgage interest is not deductible in Canada. There’s no particularly good reason for such interest to be deductible in the U.S., except for political pressure by real estate agents and developers.
Buy Low, Sell High = FREE TRADE
Buy High, Sell Higher = NO TRADE
Any questions?
Cutting all the programs in which the Fed Govt does not have a Constitutional Mandate is number one.
In evaluating the Home owners Mtg int deduction many things must be considered.The first of which is are the nominal rates reduced enough to compensate for it’s loss? The second, is it’s retention a path to argue for other sacred cows?
As to the gas tax, let the users pay for all road construction and repairs. What could be more fair? No other funding from any source. Raise it to a level needed and localize as much as possible.
The American Dream of home ownership is a bunch of hooey anyway. In fact if I’ve learned anything in my adult years, it’s that the three pillars of the American Dream — get a college degree, buy a house, pump out kids — are all a bunch of baloney to varying degrees. As soon as my wife and I are able to unload our house, we’re sworn never to buy another. In seven years, we’ve found no upside whatsoever.
Ann in LA got it in one:
“We won’t have real deficit reduction until *everyone* realizes that *their* sacred cows have to be up for the slaughter.”
The mortgage interest deduction should go away–even on primary residences. It is unfair to force renters (usually younger and less well off) to subsidize the debt of home buyers. It needs to be done either incrementally, or in concert with other tax reductions that make it a net wash financially–the way the Reagan tax cuts also removed the consumer credit interest deduction. Most home buyers factor that deduction in when figuring out how much house they can afford to buy. Yanking that rug out would cause some people to default on their mortgages. Not something we need more of right this minute.
Raising the SS retirement age is another thing that should be done. However, 69 years old feels a lot different for a white collar worker than it does for a construction or agricultural worker. An attorney can continue working into his/her 80s; you don’t see many 80+ year old iron workers. Ultimately Social Security needs to be completely dismantled and replaced with individual-directed retirement schemes, but the time to do that with minimal pain was when Eisenhower was in the Whitehouse.
“But repealing mortgage interest payment deductions amounts to a direct attack on the American dream of home ownership.”
This is a ludicrous statement. 1) Assuming that it is an unanimous and worthy dream, does this merit a tax subsidy at the expense of poor people who cant’t buy a house? 2) Who decides what dreams are worthy of subsidies? Perhaps a new committee should regulate the American dream.
A phase out of the deduction will result in a gradual one time adjustment in housing prices. Supply and demand dictate pricing. Pricing will be adjusted to after tax cash flows.
My finance professor for a real estate course in grad school taught us that the only rational reason (based on discounted cash flow models) that buying a house was a good investment is because of the tax subsidy through mortgage deductions. The landlord gets all the deduction and passes as little as possible on to renters based on supply and demand, so at best, the renter gets the same break as an owner, but generally 100% of the benefit is not passed on to the renter.
The dream of home ownership is also why we have more unemployment than necessary. Renters are more mobile. Populations that rent can move to where the jobs are versus those who feel tied to a purchased home.
Please take some econ and finance classes.
As for the gas tax, it is a just a tax increase. It’s no different than a national sales tax. Why don’t they simplify there report. Section 1 – Cuts in spending. Section 2 – Bend Over we are going to increase your taxes here.
The biggest cost to almost every company is personel costs. As of yet I have not heard anyone talking about personel costs within the Federal Government. I have a radical idea. Let’s put all Federal workers under exactly the same pay scale as the US military. Let’s add to that the same number of officers to enlisted, and senior enlisted to lower pay grades. I suspect that this would greatly lower our personel costs in running the government, reduce the pension problem, and lower the number of people working for the Government. Then allow only Congress to set the number of persons working withing the government the same way Congress sets personel limits on the military. The EPA would not be able to hire more people without first going through Congress.
Now some wag is likely to cry (loudly) that you could not get the best young people to work in the government with such low pay, and that the number of young people who would want to work for the government would drop, a lot.
First “We have the best people working in government now?!” Somehow, having delt with the government on many ocassions I doubt that. Second, don’t say finding fewer people to stuff government jobs is a bad thing. Wow, imagine not haveing enough people to work for the EPA.
To date not one politician or think tank egg head has come up with the idea of cutting government pay. We can’t go on paying people 150,000 dollars a year to shuffle papers and add new regulations. Don’t forget that their retirement pay is based on what they make before retirement. If we can pay a young man or woman to risk his life in a foreign country to defend our freedoms, by heaven we should not pay more to a young man or woman working for a government intent on eliminating them.
Is this likely to happen? Can you find a glacier in hell? But, for me at least, what a wonderful pipe dream.
The Mortgage tax deduction definately needs to go. The excessively high rate of home ownership in the U.S. is one of the reasons that mobility is so low and that the economy is taking so long to recover. People who own their homes are more reluctant to relocate for economic reasons than renters. Decades of misguided policies that push home ownership no matter the consequences have ‘locked’ large numbers of people in place where they cannot be productive members of society. Eliminating the mortgage tax deduction is one way to reduce the incentives that got to many people into homes that they own in the first place. It will also help to reduce home prices, but only in the most expensive/inflated markets. as noted by a couple of others here, those who purchase reasonably priced homes in the $100 to $200,000 range don’t benefit much if any from the mortgage interest deductions. Their personal deductions are usually larger than the interest deductions anyway. The only real beneficiaries of the Mortgage Income tax deduction are those who own properties with inflated values on the East and West Coasts. Not coincidentally these are the areas that are being hit hardest by the current recession. There are a certain number of recent home buyers in these areas who will get hit hard by this – these are people who are/were on the margin and barely able to cover the payments on their homes already. However these are the people who are for the most part already underwater on their mortgages due to the declines in home prices in the areas they purchased in. Some of these people were speculating, but IMHO most of them were really and truly expecting they were making a sacrifice to enhance their long term financial stability. To help the transition for these people the repeal of the Mortgage Intrest deduction should be accompanied by a federally aided mortgage adjustment program that actually works to help these people either sell and get something they can afford, or to help them modify their mortgages if they want to stay. This will have some expenses in the short run (say the next 2-3 years) but in the long run will greatly ease the transition to a system with no PMI deduction. The extra spending associated with this is IMHO worthwhile as it will be the sort of government spending that is well suited to preventing the economy from getting worse.
I don’t mind spending money to send Obama overseas. I do regret spending money to bring him back.
We ought not to pretend that we can cut spending with a scapel. Massive federal entitlements are unconstitutional, and should be abolished with simple one line bills. For example, Department of agriculture, education, housing, urban development,: Certainly the founding fathers were familiar with the concepts, and gave no power to regulate it to the federal government. Title 42 should be abolished as a whole.
Think gangrenous leg, civil war medical technology. Standard was to have the amputated leg hit the floor in 7 seconds. It hurt, but hurt less to do it quick and all at once. Then the patient can begin to heal.
Eliminate the mortgage interest deduction fine–right after you vote to compensate the homeowners for the additional 50% drop in the cost of their homes that will cause–perhaps by exempting them from federal taxation entirely until they have recouped that loss. Yes the mortgage interest deduction makes no sense. But as someone commented earlier that’s just what we need–another housing crash. We’ve worked hard all of our lives and played by the rules, and now you’re trying to change the rules in the middle of the game. The middle class is getting tired of being screwed. You’re going to have an all out war on your hands if this goes on.
Immediate 25% cut to all federal budgets military included. Mandate that an additional 25% of all federal agencies be eliminated entirely within 10 years. Progressive pay cuts for gov’t workers fabulous idea. But STOP SCREWING ME OVER!!!
I have been on this planet nearly 60 years and have come to the conclusion, having gone through various phases of political thought, that we are not a free people till we realize we dictate the terms of the government taking. We seem to have lost that understanding after nearly a century of the institution of the federal income tax. Should we the populace settle for the crumbs of various proposals that in aggregate mean less for us and more for them?
It is time to turn the tables ladies and gentlemen. It is time for Americans to dictate what shall be contributed and the government(s) up and down the chain fight for those crumbs. That an amendment be passed that abolishes the present income tax and that a new tax be instituted that no taxable entity may be levied for more than XX% of total income. XX is to be determined, but the essential truth is We the People need to change the relationship — NOW.
I don’t understand everyone saying that the MID is unfair to renters. Really? Because I don’t see renters paying a property tax, like this homeowner does.
Having said that I would like to see the MID go away, along with the income tax(go to a flat tax with no loopholes commonly known as deductions). More importantly we need to get rid of property taxes. One of the main benifits of this form of governmnet was supposed to be ownership of property. We don’t own property, the banks for the most part do. Even should you pay the bank off, you only own it in terms of liability(don’t get me started on the restrictions on what I’m allowed to build on my property), your still leasing it from the government, if you don’t believe me don’t pay your property tax next year and see how long you hold on to that property.
Saying that eliminating the HMI deduction would make it harder to sell your house puts it the wrong way. What it will do is reduce the sale price of all houses to the point where the cash flow for the purchaser nets out to where it would have been with the deduction. (This assumes the marginal buyer is buying as much house as they can afford, which has been a safe assumption in the past). So whatever the value of the deduction is as a % of total annual cost of ownership, figure the house goes down about the same % in value. Any reduction in that loss would have to be supported by a higher cost of ownership.
This will happen even if the immediate impact on current owners is tax-neutral by either offsetting reductions in rates or grandfathering, since ultimately it is out-of-pocket cost of ownership that drives housing prices in mature markets. Which is why most people (literally, as over 50% of people own their houses) will fight it. And to be fair, current owners do not benefit from the deduction in any meaningful way, since they almost certainly paid a price for the house that was inflated by roughly the NPV of the deduction.
How big a hit owners will take will vary – I own a 100 year old house in an interior suburb, and my annual housing outlay is about 30% upkeep, 30% taxes/insurance, 40% financing (interest plus cost of equity) so after the deduction I would expect a 5-10% hit (it is quite possible at current rates to have at least part of a mortgage deducting against a 15% bracket). A newer house in a low-tax jurisdiction would probably get hit a lot harder, particularly where land values are high (cost of construction hits renters and buyers). Low-end housing wouldn’t be hit much at all (at current rates the first $150k or so of a mortgage probably just displaces the standard deduction).
Condo owners will get slaughtered. Without the tax deduction why on earth would anyone want to own an apartment?
This is a real obstacle to removing the HMI deduction. Which is unfortunate, as the distortions it creates in housing markets have real costs. With rates as low as they are now, this would be an ideal time to try it, since the absolute $ impact would be as low as it is likely to get. Well, assuming you think we can absorb a loss on the order of $1 trillion or so in property values at the moment…
Why not go line by line on everything in the US budget… every single item… and cut it by the same ____% (fill in the blank). Government salary… senators salary… military budget… foreign aid… presidents salary… medicare… EVERY SINGLE ITEM, the same flat % cut. Start with this, and then see what happens. Governor Christie proved this works, the principle being that everyone is willing to take the cut as long as there are no exceptions and no single group is favored above the rest. The fact is, everyone can absorb a bit of a reduction, especially if everyone is affected by it at the same time. Everyone. Even Nancy Pelosi. (Sorry, I couldn’t resist.)
Draft, pg 26 …Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000…
The way I read the draft, the authors do not suggest eliminating the deduction for the 1st mortgage on the primary resident. Did I miss something?
Draft, pg 26. …Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
The way I read this, the authors aren’t suggesting the elimination of the mortgage deduction for 1st. mortgages on primary residences. Am I missing something?
As usual, a lame-@$$ official ‘commission’ has missed the point entirely.
The solution is clear to me and many others: the federal government has too many arms in too many sectors of American life.
CUT OFF SOME OF THOSE ARMS, and return those responsibilities to the several states.
Also, too many peoeple in government have it completely backward: the government exists to serve THE PEOPLE, not the other way around.
I accept that owning a home is part of the American dream for many (most?) people. But why do we need the federal government to subsidize it? This strikes me as exactly the kind of government induced market distortion that conservatives who believe in the free market should oppose. The presence of the deduction doesn’t do much to help people afford housing because it drives prices up.
The deduction is already distorting prices and I agree that eliminating it all at once would be a massive shock to the housing market. But it’s a good idea, just one that ought to phased in over a longer period of time (ten years?).
Disclaimer: I’m a conservative who grew up in an NYC apartment and is happy not owning a home.
“…Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000…”
The $500K limit will be particularly knotty, politically. I live in the land of the half-million dollar fixer upper, and can tell you that there are no rich people on my block. This was the difficulty Obama was looking at with letting the “Bush tax cuts” expire. Northeastern and California Dems (and others) were pushing back on the $250K income limit. In many of the bluest states, housing costs and average incomes are significantly above the national average. A two income couple with a couple of kids, making $250K+ are not livin’ large in my area. A cop and a school teacher, with some years on their respective jobs, and some OT, could easily fall into that bracket.
People out there in America sometimes have a hard time wrapping their heads around that, but it’s true.
I don’t understand why the mortgage interest deduction is such a “third rail” of tax policy. People on the margins buy homes because the mortgage payments are about the same or less than renting a comparable house. I’ve never heard of anyone who wasn’t going to buy a home until he found out there was a mortgage interest deduction.
I own a home and I do my own taxes. Most of the time it’s sixes for us to itemize our deductions or just take the standard deduction. I would imagine that for the vast majority of homeowners it would be pretty similar. The only people for whom it might be much different are those who have enough charitable contributions and such to make itemizing deductions well worth their while.
It pays to get old because you remember more history, and all the political lies. Unfortunately they have piled up so high that the next generation may not have this opportunity.
A long time ago, we elected people who went to Washington to make budgets. They were called Congressmen, and this was their primary responsibility. Every year they voted out some 13 authorizations to run the nation and presented them to the President, who normally hemmed and hawed, then signed the bills to fund the country for the next year. The dead line was September, or the government would stop working. We currently are in the insane position, after frittering away last year on gay marriages, and immigration ID cards, we have no decision for this year’s budget, and many of the responsible people know they will be gone soon. This is the primary reason we sent them to do a job. Now we have unelected old bulls, in an unelected commission, to do the hard work. This commission is a clear admission that our Congress is useless.
A fundamental policy decision for Congress is to define why we pay taxes. Is it for revenue, or a social coercion to force the herd toward liberal or conservative behavior? Do we use the cattle prod to get people into green cars, or bicycles?
We know that Social Security taxes (an off budget “not tax” that really is a tax) and road user taxes have been stolen for other purposes, starting circa President Johnson, and continuing through today. These paid for the great society and ‘Nam. Oceans of money have been removed from the “lock box” by the key keepers, so now our roads are decrepit and there is no money for the hordes of retiring workers. Who would have known? The very people we returned to office last week.
I think we should give home owner deductions only to red headed people who close on Tuesday. Gas tax should be mandatory for gas stations on the east side of the road. But what we really need are zillions of new commissions to lessen the load on old folks homes.
I am all for getting rid of the mortgage interest deduction when everyone pays taxes. Cut all deductions and let everyone be a part of the American taxpaying experience. Let everyone pay a head tax or a flat tax, so they know what it is like to have a large chuck of your hard work be stolen and wasted by our wonderful bloated overpaid government. I bet a whole lot of people would sing a different tune if their hard work was taxed at 40-50% like most all those rich people they attack for not paying enough. They don’t give a crap that those people worked hard to get where they are and that they earn their money too and a lot of them provide jobs for the rest of us. So stop the class warfare because this is America where everyone is equal and that includes the rich and the poor, so everyone should pay equally. I am sorry if that bends a few noses, but if we are killing scared cows lets go for the biggest one around the progressive tax system and the class warfare that supports it.
I’ve probably deducted more mortgage interest than y’all have had hot lunches, but I have to wonder if it’s really such a good idea in terms of facilitating home ownership.
After all, if you do the responsible thing and make the bigger down payment, or alternatively, just buy the more reasonable house, then you end up paying more taxes.
Is that kind of incentive really helping us realize the American dream, or is yet another government-assisted cause of the real estate bubble that just popped in our faces?
I don’t support one single tax increase until government spending has been reduced dramatically, across the board.
And I don’t consider Social Security and Medicare payments as “government spending” or “benefits” or “entitlements”. They are a paltry return on the huge investments that elderly people have been forced to make for decades.
Let’s see the $150,000 salaries cut by 1/3. Let’s see the useless government departments disbanded. Let’s see the government bribes to local schools discontinued. Let’s see the huge payments to the UN and individual countries that hate us reduced to zero. Let’s see the Pelosi airforce grounded. Let’s see the Medicare fraud redistibution engine shut-down. Let’s see the platinum retirement benefits eliminated. Let’s see the tax credit welfare checks eliminated. Let’s see the thousands of dollars a year for each illegal alien erased.
Then we can talk begin talking about why tax increases are so stupid.
The mere fact that this looney proposal has people on a forum like this debating the tax code (and I’m as guilty as the next on that) means that they have already set the agenda….and it isn’t a good agenda.
“And I don’t consider Social Security and Medicare payments as “government spending” or “benefits” or “entitlements”. They are a paltry return on the huge investments that elderly people have been forced to make for decades.”
What!?
That’s patently ridiculous. When Social Security was started, people were extracting 13-to-1 benefits to payments from it. Until recently, Social Security was still paying out over 2-to-1 what people pay in to it. Medicare has even more skewed ratios.
In an above thread you complained that my criticism of the mortgage interest deduction made me a “liberal.” You’re defending the two largest unfunded liabilities in the federal budget, made by a generation of people who on average will pay less than half of what they will receive from them, and call me a liberal…..
It may be an unfunded liability to you.
To me it’s a liability I’ve funded to the tune of about $400,000. Which would be about $2,000,000 if I had been able to invest it instead of having it conviscated.
So if you think you’re going to take that away from the 50,000,000 people in the same boat, think again. You’re going to have an armed army of millions pointing directly at you.
You are a bone-deep liberal Aaron. You want what other people have earned, and you don’t care how you get it.
Here’s a suggestion for you. Get a job. Create some value that other people will pay for. And get your gd hands off of other people’s money.
There needs to be a cap on taxes, period and everybody needs to have some skin in the game. How about 15% flat tax, no deductions, no exclusions – I don’t care if you’re on SSI or welfare or disabled or own a big house or no house at all. You live here, you pay. The government cannot under any conditions spend more than that 15%.
I suspect a whole lot of people will have second thoughts about things that cost a lot and are of marginal utility (Department of Education.) Want more NASA? Let’s cut some Agricultural subsidies. Want higher pay for Federal workers? What will you give up to get it?
There isn’t much they do that I would pay for, voluntarily. Military? Yes, but let’s have a long, hard look at expensive weapons and high ranking officers. I don’t know why we should have ANY luxury business jets for VIP transport, AF 1 excepted. CDC, OK. Agricultural subsidies are a hard sell and certainly none should go to agribusiness.
Let’s spend it like it was all our own money, because it is. Let the UN solicit for funds and ditto for Foreign Aid. I’m disgusted at the announcement that the PA got $150 Million from us. I’d rather flush it down the toilet than have those murdering thugs get a dime.
Wilky said,
“I don’t understand everyone saying that the MID is unfair to renters. Really? Because I don’t see renters paying a property tax, like this homeowner does.”
The owner/landlord pays the property tax. The after tax cost of the property tax is passed on to the renter in the rental payment.
The Mortgage Interest Deduction does not encourage home ownership. It encourages DEBT!! The Bank owns the home until the mortgage is paid off.
The only thing that the Mortgage Interest Deduction does is increase the price of the house. The seller knows that the buyer can pay more because of the tax benefit, so the price is higher. Imagine that there was a Diamond Interest Deduction, what do you think would happen to the price of diamonds?
Very, very good point. I for one am tired of being “socially engineered”.
The interest tax deduction does absolutely nothing for the economics of home ownership over time and may actually hurt the fundamentals. The effect that it has is to raise prices since higher prices are subsidized through the mortgage interest deduction. People look at the after tax effects and can pay higher prices and therefore this becomes the new normal. In other words, housing prices will naturally adjust (down) to a level where they are similarly affordable as what they are with the subsidy. Prices will be lower, decreasing risk for the economy in general. There will be less debt and more equity in American housing stock in general. Lower housing prices will also free up investment capital to other productive uses. Its just better to get rid of it.
Of course, the mortgage interest deduction could be reduced on a longer term schedule such as over 25 years so that it does not affect those current owners as dramatically as eliminating it at one time.
Most of the readers have gotten off-track. Regardless if mortage interest deductions should or shouldn’t be allowed, it’s the law and removing it is a way to raise your taxes and steal more of your money.
Why? Because the government spends too much. Instead of lookig for more to keep or expand government, we need to cut government. Reduce the budget to estimated expected revenue levels – %20 and make it work. Cut salaries or depatments. Reduce workforce and reduce the time Congress is in session…and pay them accordingly. More time for our Congressmen to read bills in the foo-season so they no what they’re voting for. Stop all susidies and grants.
For the ignorant fools who want to blame home owners for buying too much home, I can afford my home comfortably now but couldn’t if interetst wasn’t deductible and tax rates stay the same. If you think Canada is great, move.
Very very interesting and enlightening. Thanks for sharing!