FIRE to Break Mortgage Deduction Covenant?

[don]

FIRE has done a brilliant job including the sheeple as poor cousins in the financialization of the economy. The mortgage interest deduction's FIRE-friendly features: raising the price of housing while reducing tax revenue - always a big plus in a debt-based industry. Taking away what's now regarded as the sheeple's right to a mortgage interest deduction is another storm warning that FIRE is moving on . . .

The tax numbers suggest it may not be hard to structure deduction limits in a way that leaves most middle-income households untouched....
There are a range of ways to increase tax revenue by aiming at higher earners, some less comprehensive than others. For instance, the interest deduction relating to second homes could be ended. Also, the cap on mortgage debt eligible for the interest rate deduction -- currently $1 million -- could be reduced.
...
With the mortgage interest deduction, households realized tax savings of $83 billion in 2010, according to figures from the Reason Foundation. The bulk of those savings are enjoyed by the higher earners.

NY Times

[LorenS]

Re: FIRE to Break Mortgage Deduction Covenant?

Why does the middle class need to be left "untouched"? They voted for this mess let them help pay for it. The mortgage interest deduction is a scam anyhow.

I don't mind getting rid of the loopholes that benefit the filthy rich, provided we keep a tax structure that really is fair. That means the middle class, particularly the upper portion and the AARPers need to pay their "fair share" too. Milking your grandchildren should not be your retirement plan.

[Raz]

Re: FIRE to Break Mortgage Deduction Covenant?

Why does the middle class need to be left "untouched"? They voted for this mess let them help pay for it. The mortgage interest deduction is a scam anyhow.

I don't mind getting rid of the loopholes that benefit the filthy rich, provided we keep a tax structure that really is fair. That means the middle class, particularly the upper portion and the AARPers need to pay their "fair share" too. Milking your grandchildren should not be your retirement plan.

+1.

[charliebrown]

Re: FIRE to Break Mortgage Deduction Covenant?

Can we have a glide path? Say the mortgage interest rate gets reduced 5% a year until it is gone (20 yrs). So people who bought a house with the rules of 2012 are not foreclosed on in 2013. Tax savings on even a modest house in the burbs, may save you $2500 in taxes. That might be one or two payments a year which is the difference between solvency and bankruptcy for a 60-70K family.

I really dont want to subsidise housing anymore. With job security way down the idea of owning is not making as much sense. I may have to move considerable distance every 5 years as jobs come and go.

[vt]

Re: FIRE to Break Mortgage Deduction Covenant?

Agreed reduce the limit to $500K from $1 million, and ax it entirely for 2nd homes.

[lektrode]

Re: FIRE to Break Mortgage Deduction Covenant?

Agreed reduce the limit to $500K from $1 million, and ax it entirely for 2nd homes.

+1
the contruction lobby is already squealin tho, along with the aarp:

The homebuilding industry says it won't tolerate even a nick in the mortgage interest deduction. It doesn't matter, industry leaders say, if it's part of a broad, spread-the-pain package designed to tame the soaring debt.

And there's no ambiguity in the views of the top lobbying arm for retirees.

"AARP to Washington: No cuts to Medicare and Social Security in last-minute budget deal" the group's Web site declares. AARP nixes the notion of slowing the cost-of-living formula for Social Security recipients, even if it's part of a big, bipartisan compromise package. And President Barack Obama should drop his idea of raising Medicare's eligibility age, AARP adds.

So much for the notion of shared sacrifice as Congress and the White House face a Dec. 31 deadline to craft a far-reaching deficit-reduction plan. If they fail, the government tips over the so-called fiscal cliff, at least for a time. Nearly everyone's taxes will rise, and federal programs will be whacked. Financial markets might quake, and a new recession could begin, economists say.

uh huh - i like how they say 'might' and a 'new' recession 'could begin'....
guess they wouldnt wanna spook the herd ?? so close to xmas

The home mortgage interest deduction saves borrowers $99 billion a year in taxes, making it easier to buy and sell houses. Should even a small portion of that tax break be eliminated, perhaps for the richest people, to help reduce federal borrowing?

No, says Jerry Howard, chief executive of the National Association of Home Builders. Home owners suffered huge losses in personal wealth during the recent collapse of the housing market and the sector should be spared any further dings, he said.

"While the rest of the nation was in a recession, we were in a depression," he said. "Congress should be embarrassed" to even think of asking homeowners to help pay for a fiscal crisis that lawmakers brought on themselves through years of inaction, he added.

It's the same tune at universities and other institutions that rely on charitable gifts. They want to fully exempt the charitable gift deduction, which costs the government about $51 billion a year, from a role in the fiscal cliff talks.

"We urge you and House leaders not to impose any limits or caps to the charitable deduction," the Charitable Giving Coalition said in a recent letter to Boehner and others.

Like other interest groups, this one says it has special attributes that set it apart.

"The charitable deduction is different than other itemized deductions in that it encourages individuals to give away a portion of their income to those in need," the letter said.

And so it goes, group by group, tax break by tax break, payout by payout. Everyone is special. Everyone is deserving.

congress should be embarrased alright -but for giving away the treasury to bailout the banksters in 2008-10
while The Rest of Us got stiffed and stuck with the bill...

[Slimprofits]

Re: FIRE to Break Mortgage Deduction Covenant?

http://www.andrewrhanson.com/andrewr.../Research.html

The Incidence of the Mortgage Interest Deduction: Evidence from the Market for Home Purchase Loans
Accepted for Publication at Public Finance Review as of 7/18/2011
Andrew Hanson
Department of Economics, Georgia State University

Abstract:
This paper examines the incidence of the largest housing related subsidy in the Federal budget, the home mortgage interest deduction (MID). I use the difference in interest rates for loans made around the $1 million MID limit to identify the incidence of the subsidy. Using data on individual mortgages originated in 2004, I estimate that for every $1,000 borrowed without the MID, the interest rate on the entire loan decreases by between 3.3 and 4.4 percent. Results suggest that lenders capture between 9 and 17 percent of the subsidy created by the home mortgage interest deduction through higher mortgage interest rates.

also:

http://staging.weeklystandard.com/bl...on_614586.html

But even this map understates the extent to which these elite communities benefit from the deduction: not only are they more likely to be buying houses and taking the deduction in Greenwich than in Peoria, but the very nature of any tax deduction in a progressive tax code means that the average benefits of the Greenwich homeowner dwarf what the Peorian is getting. Someone with a $1 million mortgage who earns over $300,000 a year could see the government essentially giving him a $20,000 a year subsidy for his home, while a family making $70,000 a year with a $150,000 mortgage would not receive a penny, since his puny deduction (under $2,000) would be less than the standard deduction.

[charliebrown]

Re: FIRE to Break Mortgage Deduction Covenant?

First of all is this math right. A 150K mortage at 5% is about $7500 in interest. Since this is over 2K, this would immediately qualify them to itemize deductions.
This tax payer I assume would be paying a marginal rate of 25% on their 70K income. To this deduction would be worth (7500 - 2000) x .25 = 1375. Right?

Additionally itemized deductions also include state and local taxes, property taxes, charitable contributions, etc. You don't have to be a very rich to itemize deductions. Any one of these deductions will probably put you over your 2K deduction.

Being a resident of ill myself, if a Perorian had a 150K mort at 5%, and made 70K, they would be looking at 3500 state tax, 3000 prop tax, and throw in 2000 to the church or some other organization. morgage interest would be another 7500. So this family has 16000 in deductions. The itemized deductions would be worth about $4000 dollars in tax savings. Take away the MID and this family will pay about $1800 more in taxes. That is two mortgage checks. Think the Peorian can take that dent to their budget?


Now are they talking about the amount of the note at $1M capped or the amount of the interest on the note capped. At 5% interest 1M in interest is a 20M mortgage. Where 1M house is nice but not uber nice. It could probably be affored by two professional incomes with a stretch.

[LorenS]

Re: FIRE to Break Mortgage Deduction Covenant?

The mortgage interest deduction is built on the fallacy that inflation will cover you in the future. There is already a "glide path" built into it. Your payments are fixed for 30 years, but your deduction goes down every year.

I'm OK with a gradual phase out, but, if you can't afford the house without the deduction - you can't afford the house. Houses are full of unexpected surprises like a leaking roof or a bad furnace.

I'm willing to grant one concession to the irresponsible borrowers (seeing as the lenders are getting rewarded for fraud already). Make all mortgages non recourse. And since contract law is basically meaningless anymore (ask FDR), make it retroactive starting now.

[lektrode]

Re: FIRE to Break Mortgage Deduction Covenant?

...willing to grant one concession to the irresponsible borrowers (seeing as the lenders are getting rewarded for fraud already). Make all mortgages non recourse. And since contract law is basically meaningless anymore (ask FDR), make it retroactive starting now.

+1
since the big boyz use bankruptcy - to the tune of billions whenever it suits THEM - as just another tool in the executive kit - esp since they even get to collect/profit from 'insurance fraud' - again, whenever 'upholding contract law' becomes suddenly sacrosanct - well... when its for certain well-entrenched beneficiaries - why should they be able to resort to suing the loan-owners that they enabled to go off the deep end, when the value of the house krashes and the poor sap gets laid-off after the 'masters of the universe' latest rigged-bets wipes out the economy?

[rogermexico]

Re: FIRE to Break Mortgage Deduction Covenant?

I think the maximum size of a mortgage for which one can deduct interest has been 1M plus 100k in improvements for quite some time. Mortgages that were originated in prior to 1987 are grandfathered.

So the rich don't benefit from MID on loan amounts over about 1 M currently.

5 and 20 M houses are a cash market mostly, but one could make the argument that with rates so artifically low, it still makes sense to borrow at 4% and invest in something else rather than pay cash.

[jk]

Re: FIRE to Break Mortgage Deduction Covenant?

historically, with home ownership the officially designated "american dream," the u.s. has put an extraordinary amount of capital into home construction, i.e. producing a consumption good, at the cost of undercapitalizing other investments. the main benefit of phasing out the mid will be to free more capital to invest in productive capacity.

[don]

Re: FIRE to Break Mortgage Deduction Covenant?

historically, with home ownership the officially designated "american dream," the u.s. has put an extraordinary amount of capital into home construction, i.e. producing a consumption good, at the cost of undercapitalizing other investments. the main benefit of phasing out the mid will be to free more capital to invest in productive capacity.

which, naturally, cheapens the product into a disposal, 20 year life span commodity. Much has been written about the various methods used to "encourage" the ever-outward growing ring of suburbs around urban cores which feed the housing machine.

Abolishing the mortgage interest deduction would, albeit after the bursting bubble distortions end, lower the price of housing.

the real estate mantra has gone something like this:

Yes, I know your limit on a mortgage is $XXX. But you're not taking into consideration the interest on your loan is deductable. Taking home a fatter paycheck will allow you to afford that $XXX+ house you and your wife have your heart set on . . . .

[rogermexico]

Re: FIRE to Break Mortgage Deduction Covenant?

which, naturally, cheapens the product into a disposal, 20 year life span commodity. Much has been written about the various methods used to "encourage" the ever-outward growing ring of suburbs around urban cores which feed the housing machine.

Abolishing the mortgage interest deduction would, albeit after the bursting bubble distortions end, lower the price of housing.

the real estate mantra has gone something like this:

Yes, I know your limit on a mortgage is $XXX. But you're not taking into consideration the interest on your loan is deductable. Taking home a fatter paycheck will allow you to afford that $XXX+ house you and your wife have your heart set on . . . .

The stupid and terribly unfair thing about the MID is that it rewards you for three things: 1) Borrowing a lot of money and being in debt and 2) Having HIGH taxable income and 3) Having a mortgage high relative to your net worth - i.e., buying too much house - so that your itemized deduction exceeds the value of the standard deduction - a necessity the NAR never seems to point out of course.

So once you retire or just scale back, it becomes worthless and if you draw down savings to pay your mortgage and don't have taxable income, it's not worth squat.

Further evidence that the whole system is rigged to be pro-FIRE and pro-consumption and pro-taxation and pro- debt slavery is illustrated by a conversation I had with a banker just yesterday. It is easier to get a government backed qualifying mortgage if you make 200 K per year and are loaded to the gills with debt WITH ZERO NET WORTH, than it is to get a loan for the EXACT SAME AMOUNT with 100K in taxable income and NET WORTH THAT IS 20 TIMES AS LARGE AS THE LOAN PRINCIPLE!

They should kill the MID for good and should have done it a long time ago. It only benefits FIRE and real estate agents.

[rogermexico]

Re: FIRE to Break Mortgage Deduction Covenant?

historically, with home ownership the officially designated "american dream," the u.s. has put an extraordinary amount of capital into home construction, i.e. producing a consumption good, at the cost of undercapitalizing other investments. the main benefit of phasing out the mid will be to free more capital to invest in productive capacity.

One can only imagine the cool things we could have built in lieu of all the 5000 square foot vinyl-clad POS boxes with 14 foot high great rooms littering the landscape.