patrick.net

Underdark says

What kills me is when conservatives make a spectacle of earmarks such as $500,000 for a whale museum or something like that. $500,000 is about what is spent per minute in Iraq and Afghanistan. Messed up priorities.

Therefore, two wrongs make a right.... A conservative may be against a particular pork/earmark... A liberal may be against the same thing. But to the liberal, because the conservative is not against another thing the liberal believes is wasteful, there can be no common ground - must focus on the ills of the conservative before what is best for the country! Politics and ideology first!

bswip says

Now leave the Mortgage Interest deduction alone. If you want to further damage the real estate industry take this deduction away and presto we will have deflation for years to come!

What does "damage the real estate industry" mean? Is that a euphemism for lower prices?

Discouraging mortgages would result in lower house prices, shorter loan durations, and more paid off homes. The resulting interest saved could then be spent elsewhere in the economy for real goods and services. Good for everyone but the banks.

Paralithodes says

Therefore, two wrongs make a right…. A conservative may be against a particular pork/earmark… A liberal may be against the same thing. But to the liberal, because the conservative is not against another thing the liberal believes is wasteful, there can be no common ground - must focus on the ills of the conservative before what is best for the country! Politics and ideology first!

Wow--you completely missed the point of the post. What is irritating is that so many people worry so much about the miniscule spending but don't care about the huge outlays. If anyone wants to really fix the budget problem, you have to tackle the big 3 spending.

People who talk about earmarks or foreign spending are just demagogues. They don't really want to solve the problem...

rob918 says

IF anything is done about the mortgage deductions it will be at the very top end and it would affect very few Americans………Congress, NAR and the middle class just won’t let this happen at the middle and lower middle end.

There is one way - by increasing the Standard Deduction.

For example, a married couple today with a 4% 30 yr mortgage with a $260k balance would not have enough interest to make the approx $10,500 Standard Deduction. Increase the standard deduction to $20,000 and the loan threshold to make the Std Deduct worthwhile is over $500k.

Of course, the loan threshold to beat the standard deduction decreases for couples with high local taxes, medical deductions, or padded Goodwill reciepts, but my point still holds.

Perhaps raising the Standard Deduction to $20k (pleasing the Republicans) and paying for it by removing the Mortgage Interest Deduction on total loan balances over $400k (pleasing the Democrats) is politically doable.

tatupu70 says

Paralithodes says

Therefore, two wrongs make a right…. A conservative may be against a particular pork/earmark… A liberal may be against the same thing. But to the liberal, because the conservative is not against another thing the liberal believes is wasteful, there can be no common ground - must focus on the ills of the conservative before what is best for the country! Politics and ideology first!

Wow–you completely missed the point of the post. What is irritating is that so many people worry so much about the miniscule spending but don’t care about the huge outlays. If anyone wants to really fix the budget problem, you have to tackle the big 3 spending.
People who talk about earmarks or foreign spending are just demagogues. They don’t really want to solve the problem…

That's all just simply your opinion. What makes you assume that folks who worry about the "miniscule" spending don't care about the huge outlays? Is it an If/Then, Either/Or proposition? Maybe for some people, the "miniscule spending" is indicative of the larger problem, and they "worry" about both? Why would you seem to disregard this possibility, or simply assume that it is not the case?

In my opinion, people who talkabout earmarks are demagogues only if they don't walk the walk. If they do, then they are contributing to changing a culture of over-spending and needless spending.

The deduction isn't going anywhere. It would instantly collapse the prices of real estate, leaving many millions more underwater on their loans.

It doesn't even make sense to get rid of the deduction. Landlords get to take it. They have to be able to take it, since it's a business expense which could cause them to operate at a balance sheet loss. (If you think taxing somebody on "profits" where they are actually making a loss is OK, you need to have your head examined.)

So the deduction is fine for landlords, but not for common folk? If you own a home with a mortgage, you'd be better off renting your home out, and go rent. Hell, if you live in a condo complex you can just swap places with your neighbor, rent to each other, and both keep taking the deduction.

MarkInSF says

It doesn’t even make sense to get rid of the deduction. Landlords get to take it.

That can be fixed.

(If you think taxing somebody on “profits” where they are actually making a loss is OK, you need to have your head examined.)

not if you think any profits in single family housing rentals are outright theft as I do. Getting rid of the interest deduction is one step in getting rid of the the leechfucks buying up SFHs and preventing middle class people from owning their own homes. Ho Chi Minh had that part of his reform right -- liquidating the LLs.

Underdark says

the life expectancy will probably be 10 years longer, so increasing the retirement age to 69 will not be near enought. But this is a start.

The fuck? Are we going to be in better shape at age 69 later this century?

The alternative to raising the retirement age is to raise FICA contributions. 0.1% a year, a dollar a week, for the next 20 years would be a start. Plus raising the cap since higher-paid workers tend to live longer and thus overdraw compared to their contributions. I intend to live to 100, LOL.

MarkInSF says

The deduction isn’t going anywhere. It would instantly collapse the prices of real estate, leaving many millions more underwater on their loans.

It would do this instantly, if it were implemented in full instantly. If it were wound down over the course of many years, allowing mortgage holders to wean themselves slowly, it could be done without the catastrophic results you imply.

MarkInSF says

It doesn’t even make sense to get rid of the deduction. Landlords get to take it. They have to be able to take it, since it’s a business expense which could cause them to operate at a balance sheet loss.

It would still be a business expense. Nothing would have to change in that scenario, nor should it.

MarkInSF says

So the deduction is fine for landlords, but not for common folk? If you own a home with a mortgage, you’d be better off renting your home out, and go rent. Hell, if you live in a condo complex you can just swap places with your neighbor, rent to each other, and both keep taking the deduction.

Yes, just like a small business that owns a vehicle gets to write its expenses off against its revenues, to put it in your words, "the deduction is fine for landlords, but not for common folk." Small businesses expense many items, many of which are much more dual purpose than a property rental, that the "common folk" do not. And so what. Do two apparent wrongs (in the opinion of perhaps some) make a right?

And again, why wouldn't someone on the left be for elimination of the mortgage deduction? It by and large benefits the wealthy much more than the middle & lower-middle classes.

Paralithodes says

Do two apparent wrongs (in the opinion of perhaps some) make a right?

I'm not saying two wrongs make a right. I'm saying two wrongs is twice the number of wrongs.

MarkInSF says

The deduction isn’t going anywhere. It would instantly collapse the prices of real estate, leaving many millions more underwater on their loans.

I could easily see them not allowing mortage interest deduction on any new or refinanced loans.

Paralithodes says

It by and large benefits the wealthy much more than the middle & lower-middle classes.

It doesn't benefit anyone but the REIC actually. Higher asset values mean higher skims.

it is impossible to make real estate "more affordable" for all since the supply is fixed at any given time and financing means the monthly payment determines the price.

Lower interest rates, housing goes up. Lower taxes, housing goes up. Increase real incomes, housing goes up.

Henry George nailed this treadmill effect over 100 years ago:

http://en.wikipedia.org/wiki/Progress_and_Poverty

but it's really amazing how the best-selling book of the 19th century is totally forgotten today.

Troy says

It doesn’t benefit anyone but the REIC actually. Higher asset values mean higher skims.
it is impossible to make real estate “more affordable” for all since the supply is fixed at any given time and financing means the monthly payment determines the price.
Lower interest rates, housing goes up. Lower taxes, housing goes up. Increase real incomes, housing goes up.

We're at the point of conjecture here, but the higher one's income, the less likely they are going to let the mortgage interest deduction be a major factor in their decision to purchase a house. Much like the homebuyer's credit of last year, those who got it were probably going to buy anyway. So without the deduction, someone at the 33% tax bracket would pay $3,300 more in federal taxes for every $10K of interest paid in a particular year.

I agree that the deduction benefits the REIC. It does not benefit only them. It benefits those who have higher income and who buy more expensive houses.

MarkInSF says

Paralithodes says

Do two apparent wrongs (in the opinion of perhaps some) make a right?

I’m not saying two wrongs make a right. I’m saying two wrongs is twice the number of wrongs.

Then getting rid of one of the wrongs, even if one still exists, is a huge improvement.

Paralithodes says

I agree that the deduction benefits the REIC. It does not benefit only them. It benefits those who have higher income and who buy more expensive houses.

But having the deduction actually makes the house more expensive.

Say there were no interest deduction, and you could afford a $1M home. If congress then granted an interest deduction, you might be able to afford a $1.2M home. But so can everybody else in your income bracket. So home prices get bid up, people are taking out bigger mortgages, and having higher overall payments. Neatly cancelling out the tax benefit. The only ones that actually benefit are those that owned homes before the deduction was enacted, as they get a capital gain.

Paralithodes says

We’re at the point of conjecture here, but the higher one’s income, the less likely they are going to let the mortgage interest deduction be a major factor in their decision to purchase a house

But it's certainly a factor in how much they will bid.

Mark, what exactly is your argument? Are you for or against terminating the mortgage deduction?

I am for it as long as the deduction is wound down over a reasonable timeline. And that is even though I am likely to purchase a house within the next few months, The longer the time, the less the impact on current mortgage holders, since they will be paying more principal and less interest (therefore having less interest to deduct) over time, although they should expect their home values to have some hit in the long run.

Paralithodes says

tatupu70 says

Paralithodes says

Therefore, two wrongs make a right…. A conservative may be against a particular pork/earmark… A liberal may be against the same thing. But to the liberal, because the conservative is not against another thing the liberal believes is wasteful, there can be no common ground - must focus on the ills of the conservative before what is best for the country! Politics and ideology first!

Wow–you completely missed the point of the post. What is irritating is that so many people worry so much about the miniscule spending but don’t care about the huge outlays. If anyone wants to really fix the budget problem, you have to tackle the big 3 spending.
People who talk about earmarks or foreign spending are just demagogues. They don’t really want to solve the problem…

That’s all just simply your opinion. What makes you assume that folks who worry about the “miniscule” spending don’t care about the huge outlays? Is it an If/Then, Either/Or proposition? Maybe for some people, the “miniscule spending” is indicative of the larger problem, and they “worry” about both? Why would you seem to disregard this possibility, or simply assume that it is not the case?
In my opinion, people who talkabout earmarks are demagogues only if they don’t walk the walk. If they do, then they are contributing to changing a culture of over-spending and needless spending.

You're right. I should have phrased that better. What they care about is not important. What they say in their speeches and campaign on is what I should have written. When someone says publicly that we need to drastically cut spending, but all they can cite as specific areas to cut are earmarks or foreign spending, then they are a demagogue.

tatupu70 says

When someone says publicly that we need to drastically cut spending, but all they can cite as specific areas to cut are earmarks or foreign spending, then they are a demagogue.

If the focus is on what politicians say in their speeches, then is there any politician out there now who is not a demagogue? It takes a "special" person to want to get involved in national politics these days. It was no prettier in the late 1700s/early 1800s, but it wasn't 24/7 instant coverage with tweets... (just a rhetorical dig at politicians in general... you can interpret it as partial agreement with your comment if you wish...).

I know too many people close to me that were convinced they should buy for the mortgage interest tax deduction, even though they were only going to own for a few years. I know other people that owe more than they paid 20 years ago because they keep refinancing to take out a little money and let that interest clock start over again to fleece the tax system. Bottom line is that this stupid deduction encourages people to buy when they shouldn't, and to never pay down their loans. This doesn't apply to everybody, but to enough people that it actually is ruining their finances in the long run. It only benefits the mortgage and RE brokers that 24/7 peddle the propaganda that people should buy for their yearly govt bribe. This bullshit needs to stop. All tax deductions need to go away. End social engineering.

klarek says

All tax deductions need to go away.

As should the captial gains exclusion on sale of RE, $250/500K every two years.

The mortgage deduction is "sacred" & will cause too many defaults if it gets removed. People bought, and to a certain extent, overbid on their houses, with the mortgage deduction in mind as part of the equation.

It shouldn't have been enacted to begin with because all it did was cause the price of homes to increase (thereby cancelling it's intended purpose--to promote housing afford-ability), but now that it's here, it can't be removed completely.

More than likely, what'll happen is that they'll just say that only people below a certain income level can claim the deduction (like the limits they have on standard IRA deductions--they're are only allowed for lower incomes). Another example is the Roth IRA, which you're only allowed to contribute to if you have a modified adjusted gross income below $167,000 for joint filers.

Troy says

not if you think any profits in single family housing rentals are outright theft as I do.

How's that?

A family who moves into a town must be forced to rent an apartment and not a house? They are not allowed to live in a house unless they buy it?

A family that moves out of town and cannot sell their house must eat the total mortgage payment, and not be allowed to rent the home out to help cover the cost?

Patrick and others on this blog have given numerous examples of people saving money by renting instead of buying. Yet somehow their landlords who are losing big every month are thieves?

And why would a landlord who profits from an apartment bulding be any different than a landlord that rents SFH?

If you are in a place like Arizona, where house prices are low enough to rent out profitably, that means that few want to be stuck with ownership and would prefer to rent. In that case, the guy who buys and rents out is providing a service - he is taking the risk of buying that his tenants do not want to take.

Once upon a time there was a country which guaranteed jobs for everyone, free education and health care, pensions comparable with salaries. They squeezed money from their core population to pay for nation building in remote corners of the planet. They sent a great deal of what was left to their satellite countries. You might say they did not have carrier strike groups, but hey, they had more tanks than the rest of the world combined and were not exactly shy of using them. And then 1991 came, money ran out and the country fell apart.

So it will be historic irony of monumental proportions if the US follows exactly the same trajectory as its previous nemesis. And we know for a fact (see above) that it can happen if the ruling class completely loses touch with reality.

If you look at modern-day CA you can see it playing out on a smaller scale. The commies will fly this state into the ground unless they are stopped and just a few days ago we learned that there are not enough tax payers even in the SFBA to stop the Dems.

HeadSet says

How’s that?

A family who moves into a town must be forced to rent an apartment and not a house? They are not allowed to live in a house unless they buy it?

A family that moves out of town and cannot sell their house must eat the total mortgage payment, and not be allowed to rent the home out to help cover the cost?

I don't know, there could be some approaches. City-run Land Banks, that sort of thing.

Part of my overall philosophy of real estate economics is that we should only have to pay capitalists for the capital we use, so in my preferred utopia home prices would not be the great burdens they are now -- we would use taxes to determine who lived where not purchase prices. http://en.wikipedia.org/wiki/Land_value_tax

The current system of "investors" buying SFHs and locking them up as "income properties" is simply unjust and a clear example of predatory capitalism -- which can be defined as getting something for nothing.

And why would a landlord who profits from an apartment bulding be any different than a landlord that rents SFH?

MFH is more clearly a form of capital and we should encourage LLs to create and maintain this capital development by allowing reasonable capital returns from their capital investments.

SFHs are created for families not investors, and investors moving into this area push out households from owning their own home, making them slaves in their own land instead.

Profiting from the land is like profiting from the air. Those who profit from value which they did not create are not capitalists in the true sense.

Mark_LA says

The mortgage deduction is “sacred” & will cause too many defaults if it gets removed. People bought, and to a certain extent, overbid on their houses, with the mortgage deduction in mind as part of the equation.

It would only cause too many defaults if it were terminated instantly instead of phased out over a reasonable amount of time.

Mark_LA says

It shouldn’t have been enacted to begin with because all it did was cause the price of homes to increase (thereby cancelling it’s intended purpose–to promote housing afford-ability), but now that it’s here, it can’t be removed completely.

You're right, it shouldn't have. I am starting to see Troy's point about how it specifically benefits the REIC more than anyone else (even those wealthy enough to not be bothered by home prices within a certain range are paying more to the REIC than they would have). Your second point is indicative of any goverment program or entitlement, large or small. As soon as one is created, a constituency is created with it.

Mark_LA says

More than likely, what’ll happen is that they’ll just say that only people below a certain income level can claim the deduction (like the limits they have on standard IRA deductions–they’re are only allowed for lower incomes). Another example is the Roth IRA, which you’re only allowed to contribute to if you have a modified adjusted gross income below $167,000 for joint filers.

The concept sounds like a reasonable start to wind this down. Put an income threshold on it and move that threshold down over time until the deduction no longer exists.

The Wikipedia page for the mortgage interest deduction is interesting.
http://en.wikipedia.org/wiki/Home_mortgage_interest_deduction

One part:

Under 26 U.S.C. § 163(h) of the Internal Revenue Code, the United States allows a home mortgage interest deduction, with several limitations. First, the taxpayer must elect to itemize deductions, and the total itemized deductions exceed the standard deduction (otherwise, itemization would not reduce tax). Second, the deduction is limited to interest on debts secured by a principal residence or a second home. Third, interest is only deductible on up to $1 million of debt used to acquire, construct, or substantially improve the residence, or on up to $100,000 of home equity debt regardless of the purpose or use of the loan.

The framework for phase out is already there. Start moving the threshold down over time: For example, $50 - $100K per year for the $1M limit (and maybe as the limit decreases, increment it down in smaller amounts), and $10K per year max for the home equity debt.

The rest of the page is very interesting. It covers many of the points discussed in this thread. Worth a read...

MarkInSF says

The deduction isn’t going anywhere. It would instantly collapse the prices of real estate, leaving many millions more underwater on their loans.

You say that as if that is a bad thing.

Adding to Para comments...

Home Equity Debt Limit
There is a limit on the amount of debt that can be treated as home
equity debt. The total home equity debt on your main home and
second home is limited to the smaller of:
1) $100,000 ($50,000 if married filing separately)
2) The total of each home's fair market value (FMV) reduced (but
not below zero) by the amount of its home acquisition debt and
grandfathered debt. Determine the FMV and the outstanding
home acquisition and grandfathered debt for each home on the
date that the last debt was secured by the home.

The interest on $15,000 of the home equity debt is fully deductible.
The interest on the remaining balance of $30,000 is generally
treated as personal interest and is not deductible.

native94027 says

MarkInSF says
The deduction isn’t going anywhere. It would instantly collapse the prices of real estate, leaving many millions more underwater on their loans.
You say that as if that is a bad thing.

Like everything else you phase it out over time.

People are already underwater due to overpaying on homes regardless of the tax laws.

native94027 says

MarkInSF says

The deduction isn’t going anywhere. It would instantly collapse the prices of real estate, leaving many millions more underwater on their loans.

You say that as if that is a bad thing.

If you think it's a good thing because it would drive down home prices, it wouldn't. It would be a total wash as far as debt service and housing affordability goes. You would need a smaller loan, but your real payments after taxes would still be the same.

It it a bad thing, because people being underwater in their homes, and banks being crippled by losses has bad consequence for the real economy.

Paralithodes says

Mark, what exactly is your argument? Are you for or against terminating the mortgage deduction?

I'm against removing the deduction because it creates an asymmetry between landlords and individual homeowners. The deduction supposedly distorts the housing market, but one person able to deduct the interest and another not is clearly distorted. Just look at my example of the condo neighbors swapping places and renting to each other so they can both take the deduction. That demonstrates how absurd this asymmetry would be.

I'm also for a complete overhaul of the tax system which does not involve a progressive income tax, but that's a whole other issue.

MarkInSF says

If you think it’s a good thing because it would drive down home prices, it wouldn’t. It would be a total wash as far as debt service and housing affordability goes. You would need a smaller loan, but your real payments after taxes would still be the same.

It it a bad thing, because people being underwater in their homes, and banks being crippled by losses has bad consequence for the real economy.

The deduction was a form of 'debt relief', if it has no impact then it should be repealed. If has has no impact on prices as you state, it would not have bad consequences for the economy. Banks would still lend regardless of deduction. Business as usual. You might as well put in now, so home prices do not get out of hand down the road.

thomas.wong1986 says

MarkInSF says

If you think it’s a good thing because it would drive down home prices, it wouldn’t. It would be a total wash as far as debt service and housing affordability goes. You would need a smaller loan, but your real payments after taxes would still be the same.
It it a bad thing, because people being underwater in their homes, and banks being crippled by losses has bad consequence for the real economy.

The deduction was a form of ‘debt relief’, if it has no impact then it should be repealed. If has has no impact on prices as you state, it would not have bad consequences for the economy. Banks would still lend regardless of deduction. Business as usual. You might as well put in now, so home prices do not get out of hand down the road.

Sorry, I didn't state that clearly. Let me edit that....

MarkInSF says

If you think it’s a good thing because it would drive down home prices, it would would drive down home prices, but that would not be a good thing for home buyers because it would be a wash in terms of after tax mortgage payments.

MarkInSF says

I’m against removing the deduction because it creates an asymmetry between landlords and individual homeowners. The deduction supposedly distorts the housing market, but one person able to deduct the interest and another not is clearly distorted.

I'll take that asymmetry if what I get in return is seeing my kids being able to afford a house a little easier and not being encouraged by the goverment to be debt slaves, by encouraging them to take on more debt than they might actually take otherwise.

Any change of a process, regardless of what it is, is asymmetric somewhere. If the choice is keeping something that is wrong, because it creates some type of perceived asymmetry, or fixing something, even if not 100%, I'll take the latter. Some change can be evolutionary - it doesn't all have to be revolutionary.

As far as your concerns about asymmetry...we're all talking hypotheticals anyway now so.... lower house prices would likely result in price pressure on landlords - the whole rent vs. own thing. Also, removing interest from being a business expense would cause some landlords to raise rents. While you might consider this to be a good thing because it might make them less competitive against home ownership, it would end up hurting those who are the least likely to afford a house in any case. Why would anyone want to cause that to happen?

MarkInSF says

I’m against removing the deduction because it creates an asymmetry between landlords and individual homeowners.

Kill it for both for SFHs and condos. Renting these out shouldn't be considered a "business" worth subsidizing since nothing of value is being created.

Symmetry restored & Problem solved.

it would would drive down home prices, but that would not be a good thing for home buyers because it would be a wash in terms of after tax mortgage payments.

All ad-valorem costs in real estate would be cut. We're talking a ~$100,000 price cut on the $450,000 property. This is not peanuts.

robertoaribas says

Mark you are offer your rocker! Landlords pay taxes on their NET income,

Off my rocker? Right, the depreciation is only a deferral (supposedly), but interests deduction is never recaptured. Who said anything about paying taxes? Lots of rental properties operate at a "loss" that deducts from their owners personal income. The two condo owners swapping properties can avail themselves of the interest deduction by operating at a loss, and having it flow through to their personal income.

I've said it before, but the funny thing is if they wanted to SAVE the entire post-bubble economy ca. 2007 what they could have done was convert the tax deduction into a tax credit.

Woulda cost $300B a year maybe and would have preserved the high levels prices had got to and kept everyone happy and housed.

The recession was a double whammy tho since it was HELOCs and cash-out refis that were driving most of the "growth" 2004-2006. That game was about over in 2007, regardless.

MarkInSF says

If you think it’s a good thing because it would drive down home prices, it would would drive down home prices, but that would not be a good thing for home buyers because it would be a wash in terms of after tax mortgage payments.

1) Wash or not, the buyer would not be encouraged and perceive to be rewarded for taking on more debt. Why would we want to encourage or reward more debt?
2) For those who are concerned about distribution of wealth, it would address the "asymmetry" of who gets the most bank for the buck (aside from the REIC, that is). As Roberto describes above (#3), deductions against income in the highest tax brackets are worth much more than deductions that are in the lowest, that barely scrape by the standard deduction.
3) For those who want to raise taxes, especially on the "rich," or who are concerned about the government raising revenue, this is one way to do it, "wash" or not.
* How much $$ does the government collect when someone deducts $10,000 mortgage interest from their income, that would have otherwise fallen in the 32% tax bracket? Answer: $$Zero.
* If the same person in the 32% bracket has only $6800 in non-deductable mortgage interest due to the "wash" that you describe above (lower price and smaller loan due to lack of deduction). They would have to earn $10,000 to be able pay this interest. How much does the government collect from the before tax income required to pay that $6800? Answer: $3200.

This sounds like a win-win to me.

Troy says

Kill it for both for SFHs and condos. Renting these out shouldn’t be considered a “business” worth subsidizing since nothing of value is being created.

But it's not a subsidy. It is a real business expense, just as real as changing the carpets. You pay $1000 to the bank, but only have $500 gain on your principal. It's a $500 interest expense.

I understand where you're coming on landlords not producing anything, and just being "rent collectors". I don't think that situation will change any time soon though.