I'm out in Abilene, TX but did live in CA at one point. We had a $600,000 or so mortgage and the interest deduction did matter. Remember we're also at historically low interest rates and when rates go up so will the mortgage interest (some people still take adjustable loans out, and HELOCs are adjustable).
I do think it should be income based and capped. For instance you can only deduct it against W-2 income so the WalMart kids and Buffet won't get to offset their dividend income. If you don't EARN money by working then you can afford to lose the deduction. This could be fazed in over 10 years (10%/year starting in 2014). That'll give them a full year or so to pay off/down the mortgage or adjust their finances. It'll also faze in the impact to the high end real estate market. Those bastard hedge fund managers with their "carried interest" BS tax break wouldn't get to write off their mortgage interest.
I'd argue for full tax deduction for families making W-2 income of $250K or less, with an adjustment upward on the $250K multiplier for high-expense/income counties. Or even double that to $500,000/couple of W-2 income to take full deduction. We never make even close to the $250K when living in CA so a full deduction still covers a SFR in Campbell, CA.
For those fortunate to make W-2 income of $250K/year (or even make it $500K/year) as a couple I think proper budgeting will allow even the affordability of Palo Alto, SF, NYC, etc.
I think the federal government should get rid of capital gains and make it part of income (like CA does for income tax), and keep the mortgage deduction for primary residences only. Getting rid of the deduction would hit the middle class and upper middle class the hardest, especially in the Northeast and West Coast. The really rich really wouldn't be affected that much.
The really rich like Buffet and hedge fund managers making hundreds of millions per year get the low 15% dividends (scheduled to go to 20%) rate. I think that's a better fat cat target than the capital gains tax (isn't that supposed to go to earned income rate if the scheduled law expirations happen??)
I say both dividends and capital gains should be considered income. Many on this forum say you should put your money into stocks rather than a house, but the stock market is also propped up with sweet tax incentives and is 10x more corrupt and manipulated.
The mortgage interest deduction is a middle-class tax cut.
Eliminating it will not affect the 1% at all. They will simply roll all their property into an investment corporation and deduct the interest anyway.
I understand the argument used by those who want to eliminate it, citing lower real estate values as a benefit, however I don't agree with it and I think the aristocracy is going to ultimately set prices regardless of how taxes are handled.
LOL, Sweden, Norway, Germany are not "hurt" by their tax structures.
Now, a flat tax on all incomes would be an interesting experiment. If we did not rebalance the wealth flows with government redistributive spending, the 90% who pay various rents to the 10% would eventually have no means at all and the current price structure would collapse.
That would be an interesting situation to see.
But people who cannot see where this is all going really trouble me, in that they are either being dishonest here (and just bullshitting for fun or profit) . . . or simply fucked in the head.