I certainly do not call myself a progressive but I think the distorting nature of the mortgage interest deduction makes it totally a bad idea.

https://www.nytimes.com/2017/0...

How Homeownership
Became the Engine of
American Inequality

An enormous entitlement in the tax code props up home prices —
and overwhelmingly benefits the wealthy and the upper middle class.

Eliminating the mortgage interest deduction would turn a huge swath of the homeowning middle class into renters. The shift of residential property out of middle-class hands into the hands of those who can afford it -- a whole new landlord class -- will increase inequality. 

That plus the arguments that I'm sure you're already aware of, how homeownership is a solid investment for many, and that owners by and large take better care of properties than tenants. And because people are not going to re-do the kitchen, bath or family room in the property they're only renting, It would also lead to the collapse of the home improvement industry, from big chains like Home Depot all the way down to small contractors. 

The facts do not support your assertions. Unless you happen to live in one of the high tax states, you need a large mortgage to go over the standard deduction. So mostly the benefit goes to at a minimum upper middle class families. 

There is also no evidence to suggest that areas that are primarily owner occupied dwellings are inherently better maintained.

Nor, adjusted for leverage (which is larger in home ownership than in other investments) do the figures show investment in a home to be a better investment than other possibilities.

Also tom, while our area is a lucky exception, in most of the country (including most of NJ) property values are still lower than right before the Great Recession started.

tom said:

Eliminating the mortgage interest deduction would turn a huge swath of the homeowning middle class into renters. The shift of residential property out of middle-class hands into the hands of those who can afford it -- a whole new landlord class -- will increase inequality. 

That plus the arguments that I'm sure you're already aware of, how homeownership is a solid investment for many, and that owners by and large take better care of properties than tenants. And because people are not going to re-do the kitchen, bath or family room in the property they're only renting, It would also lead to the collapse of the home improvement industry, from big chains like Home Depot all the way down to small contractors. 

Maybe the loss of that tax break would just cause people to buy slightly less expensive houses. I found the article pretty convincing. 

There are probably good reasons to support eliminating most deductions.  But in cases like this, the impact would be dramatic and I believe it would be wrong to do it on an immediate basis.  It could possibly be phased out over a number of years or even grandfathered for existing homeowners.  Budgeting for a home purchase often takes the associated tax breaks into account and there are many people who might lose their homes if they suddenly had to increase their tax withholding to make up for the lost deduction.

But I suspect that it would never happen politically.

Wouldn't it make more sense to make it more widely available to lower income persons and cap the value of the deduction to spur homeownership rather than just scrapping it?

I'd  be fine with phasing it out 5% per year over 20 years, as long as all corporate deductions were phased out as well.

This makes sense.

FilmCarp said:

I'd  be fine with phasing it out 5% per year over 20 years, as long as all corporate deductions were phased out as well.

Not if the goal is to increase the rate of home ownership.

My mortgage is so small that I get more on my return by NOT deducting my interest, but by taking the standard deduction (I might have the terminology wrong, and I'm not about to go pull out my tax return to find it) instead.  While this might be rare for Maplewood, in other parts, say Irvington or East Orange, there are likely other lower income families who have become homeowners and don't benefit from the deduction either. So yes, I can see point that it currently benefits the wealthy and the upper middle class. 

Itemized deductions for the wealthy start to phase out at around $350K, don't they? So they super-wealthy aren't benefiting from it. 

I've always been in favor of upper middle class and wealthy people paying more share of taxes.  Even if it means I'm personally paying more.  I'm not happy if it goes to pay for more bombs. But if it reduces the taxes of the working poor, or pays for health care, or goes to repair the infrastructure, sure.

And money is fungible, so whether you get to higher taxes for the more well off through the elimination or curtailment of certain deductions or credits, or simply raise the marginal rates, it doesn't really matter how you get to that goal.

Did anybody read the article? No?

tom said:

Itemized deductions for the wealthy start to phase out at around $350K, don't they? So they super-wealthy aren't benefiting from it. 

There is another reason most MID benefits accrue to the top, even among homeowners: You have to itemize your deductions to claim it. Most taxpayers don’t bother because they don’t make enough money to justify the hassle. In 2014, 1.5 million households earning between $40,000 and $50,000 a year claimed the MID, receiving an average benefit of $14 a month. That same year, 6.5 million households with earnings above $200,000 claimed the MID and enjoyed an average benefit of $391 a month. What this means in aggregate is that households with at least six-figure incomes receive more than four-fifths of the total value of mortgage interest and property-tax deductions.

kthnry said:

Did anybody read the article? No?

Eh, I only got about a third of the way through.  With three kids in the house anything more than the back of a cereal box is heavy reading for me right now. 

kthnry said:

Did anybody read the article? No?

Some of it. I was surprised they found a house in Milton for <700k. 

Anyhow, I'd be in favor of gradually lowering the max deduction from whatever it is ($1M?). 

something that would increase taxes on the middle class is always a good idea.     

drummerboy said:

something that would increase taxes on the middle class is always a good idea.     

In the latest data (2012) that I could find in a Google search, only 25 percent of taxpayers claimed the mortgage deduction. And the Times Magazine article framed it this way: "Yet America’s national housing policy gives affluent homeowners large benefits; middle-class homeowners, smaller benefits; and most renters, who are disproportionately poor, nothing."

The suggestion, I think, is that describing it as a tax benefit for the middle-class is a bit of a stretch.

drummerboy said:

something that would increase taxes on the middle class is always a good idea.     

If you're living in a $1.2M house, you're not middle class.

AMT kicks in at some point.

tom said:

Itemized deductions for the wealthy start to phase out at around $350K, don't they? So they super-wealthy aren't benefiting from it. 

Every provision in the tax code has beneficiaries, so to target this one for criticism because it helps a slice of taxpayers (the "upper middle class") is not especially enlightening. If you want to go after a really regressive feature of the tax code, how about the favored treatment for capital gains? 

I also think this is a stalking horse for the elimination of deductions for state and local taxes. A wet dream of conservatives for decades, this would really put residents of states with big infrastructure expenses, like New Jersey and New York, in a bind. Successfully applying pressure on state legislatures to cut taxes will benefit the take-a-helicopter-to-work crowd like nobody's business, even as it would make life harder for the rest of us.

I read the article and found it totally persuasive. Welfare for the upper middle and upper upper classes!  I'd be very willing to see the MID gradually eliminated -- especially if the proceeds could be used to support housing initiatives for the less affluent.

@tom, I've admired your posts for years, and I find your arguments to be intelligent and compelling. But here, your arguments against eliminating the mortgage interest deduction (MID) are good reasons for phasing it out, not for keeping it. Let's not lose sight of where we are on the income spectrum. My guess is that more people on MOL are in the fourth quintile than in any other quintile. We're not swimming in cash, but we're doing very well compared with most people. A change in our financial picture could make things hard, but that doesn't change our positions of privilege.

I fully agree that we need to raise taxes severely on the helicopter crowd. I also agree that capital gains taxes are insanely low, because if society wants to reward work rather than wealth, this is not the way to do it.

But just because there are people who have immensely more privilege than we do doesn't mean we don't have a lot more than others.

We really could eliminate most tax deductions. If we adjusted the rates and brackets properly, we could raise the money we need and give a lot less preferential treatment to various special demographics. And imagine a simple tax code. Other countries have very simple tax codes, where filling out your forms typically takes 15 minutes. I see no compelling reason for things to be as they are here in the US.

I benefitted a lot from the MID, and I would have been a fool to forego it when I lived in Maplewood, because the law allowed it. But that doesn't mean I think it's fair.

We're never going to get a simple tax, though. There is simply too much money at stake for the people who finance campaigns. 

So out of all the thousands of carve-outs and preferences in the tax code, why should we be so eager to surrender the one that benefits us most directly, the mortgage interest deduction? Corporations and the 1% aren't about to surrender any of their advantages.  

OK, that's a fair question.

I think big change is coming. I just don't know when. When the poor rob the rich, it is quick, violent, and illegal. When the rich rob the poor, it is slow, non-violent, and legal. We've had a lot of the latter type lately. The longer we wait to correct this, the more violent the change will be. But it's brewing. In fact, the violence has already started.

well, thankee there for putting words in my mouth.

RobB said:

drummerboy said:

something that would increase taxes on the middle class is always a good idea.     

If you're living in a $1.2M house, you're not middle class.

Steve said:

Not if the goal is to increase the rate of home ownership.

Why exactly is or should this be a goal?  Shouldn't the benefits of home ownership be the incentive?  And, if not, why do we want to encourage it?

sac said:

Steve said:

Not if the goal is to increase the rate of home ownership.

Why exactly is or should this be a goal?  Shouldn't the benefits of home ownership be the incentive?  And, if not, why do we want to encourage it?

There are individual benefits and there are societal benefits. The thinking is that the deduction is an incentive that encourages the societal benefits by appealing to the individual.

@jimmurphy - thank you.