patrick.net

By 2075, 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.

This HAS to be done, and it is a step for a high profile bi-partisan commission to come out with these findings. Of course, the Social Security cuts were immediately criticized by liberal congressmen. And that is the problem. Conservatives will not significantly cut defense spending or approve of any tax increase. Liberals will not approve of reform or cuts in Medicare or Social Security. The are enough ideologues and special-interest sycophants in congress that can obstruct serious debt reduction. They will kick the can down the road again.

It's amazing how polarized congress is! The Liberals do not understand that they have caused enormous damage to our economy by giving out entitlements. The health care reform, if enacted and if truly a reform (sic) should be enough to make the proposed cuts in Medicare attainable. However, based upon the Liberal reaction, we all know this to be false.

So what do we do?

1) Reform Social Security? Yes, to make it even and fair by raising the ceiling to say $250,000 or $500,000 but limit the maximum one can receive to the current maximum with inflation.

2) Fix the AMT! How, well when it was first enacted back the the 60's, there was no inflation clause. So, adjust it for inflation. Go back to the year it was enacted and add the inflation rate for each succeeding year to the most current year. Then do an annual adjustment every year thereafter.

3) Any new spending or entitlements must be cost neutral. Yes, some cuts will be made but at least the deficit will not grow any bigger.

4) Cut all Budgets by at least 10% and ES salaries by the same amount. The private sector has done this so why can't the government?

5) Get the lobbyists under control. They are running the country! Let no Congressman/Senator join a lobbying firm for at least 5 years after they are removed/retire from their seat..

6) Make welfare workfare! End this generational sickness that the Government will provide!

7) Enact term limits like the President! Remember our forefathers would serve their terms and then go back to what they were doing (farming, etc...) Yes, the argument is continuity, but with the scattering of elections, this would not be a problem and crony-ism would come to an end. Institutional knowledge would be passed on.

8) Maybe, make our taxes a consumption tax! He who consumes the most pays the most.... This could also be called the Fair Tax. People would then control their spending and not make senseless purchases.

9) Reduce Foreign Aid! After all, many countries we have assisted now criticize us! Let some of the emerging economies like China and India take some responsibility

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!

bswip--All of the things you suggest above will not even make a dent in the deficit.

tatupu70 says

All of the things you suggest above will not even make a dent in the deficit.

You are right. Foreign aid, welfare, and most discretionary spending are a drop in the bucket compared to the big three of defense, social security, and medicare. 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.

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.

Regardless, I still don't want to be paying for this crap either. Congress doesn't always make good decisions and using this stuff to buy votes should be criminal. This is not a balance-the-budget issue to me. If they want to eliminate this poo, good riddance. Good riddance to the mortgage deduction as well. It only encourages debt. If it were phased out over time, I doubt the impact would be as big as some suspect.

I’ll believe it when I see it…….this debt commission doesn’t have any real power to do anything but simply recommend. Most of this will never make it past Congress and what does will be so watered down it won’t matter much. As for the mortgage deduction, I would guess that most members of Congress have a morgage and I wouldn’t be surprised if some of them have rental or vacation property as well. Also, there are so many middle class voters that have mortgages that this is nearly an impossible political feat. 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.

Underdark says

will not be near enought. But this is a start.

A Suckers, er I mean Liberals famous last words.

"...It's better than NOTHING."

What a pathetic lot, chewing on a cotton cord, calling it a steak, then invoking the "It's better than nothing." defense, when the error is pointed out.

How about cooking up a Steak, nothing is better than the real thing or real people making real and honest decisions.

I'm am so sick of the "It's better than nothing party." Help my countries being over run by Morons, call the UN!

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.