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Mortgage tax break on the block

By Holden Lewis · Bankrate.com
Thursday, November 11, 2010
Posted: 10 am ET

A couple of Washington insiders want to get rid of the mortgage interest tax deduction. Normally that's not big news, because thousands of Washington insiders would like to raise your taxes (especially if they can call it "reform") while pocketing your money. But this pair of Washington insiders is more influential than your run-of-the-mill corporate cat fattening himself at the Capital Grille.

Alan Simpson and Erskine Bowles are the co-chairs of the deficit commission, formally known as the National Commission on Fiscal Words You'll Skip Over. The 18 people on the panel are supposed to send a report to Congress. Such a report would require the approval of 14 of the 18 members. Simpson and Bowles are jumping the gun, prematurely putting out a set of talking points, to pressure their fellow panel members in some way.

It's an odd set of talking points. As part of their plan to reduce the budget deficit, Bowles and Simpson suggest charging admission to Smithsonian museums. It's a laughable suggestion, because it would raise a piddling amount of money compared to the size of the budget deficit -- and anyway, have you been to the National Zoo or the Air and Space Museum? Those places will empty your wallet with a quickness.

I'd totally support the installation of hundreds of discreetly placed, frequently cleaned pay toilets on the National Mall, though. Can I get a high five on that? Thought so.

My long way of saying that the Simpson-Bowles talking points aren't very serious. They talk of shared sacrifice, yet propose cutting taxes on the high-earning Wall Streeters who took our bailout money and then rewarded themselves with huge bonuses while the unemployment rate skyrocketed. While the Masters of the Universe would get tax cuts, middle-class homeowners would lose the mortgage interest tax deduction.

In principle, I think the mortgage interest tax deduction should be phased out, because it distorts real estate prices and encourages people to buy more house than they can afford. There's an issue of generational equity to work out, though -- it's unfair to tell future homebuyers, "You can't have the tax deduction that generations of your forbears enjoyed."

The Mortgage Bankers Association complains that the timing is bad: "Given the fragile state of the nation's housing market, now is not the time to be scaling back incentives for homeownership," the MBA says.

The National Association of Realtors hasn't reacted. I expected a Linda Blair-type reaction, with spinning head and split-pea soup, but nada. Maybe the Realtors are nursing a hangover from their annual convention, which was in New Orleans and ended this week. They called it NARdiGras 2010. Party like it's 1932, dudes!

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24 Comments
Lou’s
November 22, 2010 at 8:00 am

This stupidity of eliminating the interest would cause a massive reduction of people buying houses causing a reduction of jobs in the building construction industries.This also would reduce the jobs in the companies that provide the raw materials and not so raw materials like plumbing supplies, cabinet making, etc. I thought the government was trying to create jobs. This seems to be the idiotic thinking that liberal Democrats invoke.

Steve
November 16, 2010 at 6:21 pm

Mortgage deductions should be eliminated. However, because it exists and people have made financial decisions using this as a important basis, it would need to be gradually implemented. It is certainly advantageous for first time homebuyers, but has been certainly abused in the past as with "interest only", etc. financing.

Keep it for first time homeowners, cap it and gradually eliminate it for the rest of us. Forbid it on 2nd or vacation homes, eliminate it entirely for pure investments.

A lot more deductions should be put on the chopping block such as charitable deductions, especially those going out side our country. Charity, it is said, begins at home. Exceptions can always exist by Presidential/Congressional measures which no doubt, can be enacted in emergencies.

Steve
November 16, 2010 at 6:18 pm

It should be eliminated. However, because it exists and people have made financial decisions as a important basis, it would need to be gradualy implemented. It is certainly advantageous for first time homebuyers, but has certainly abused in the past as with "interest only", etc. financing.

Keep it for first time homeowners, cap it adn gradually eliminate for the rest of us. Forbid it on 2nd or vacation homes, eliminate entire for pure investments.

A lot more deductions should be put on the chopping block such as charitable deductions, especially those goign out side our country. Charity, it is said, begins at home. Exceptions can always exist by Presidential/Congressional measures which no doubt, can be enacted in emergencies.

Sean
November 16, 2010 at 1:45 pm

Re: "helps make homeownership somewhat affordable" - when will we
learn that measures to make housing more "affordable" simply end
up making it more expensive?

Re: "people have made major ...financial...decisions" - only too true. I expect any proposal to eliminate this deduction will
involve adding a ceiling, and a gradual phaseout for deductions
below that ceiling.

Holden Lewis
November 16, 2010 at 8:10 am

This is a presidentially appointed commission whose work will be ignored. As far as why Obama chose, as the co-chairs, two men who supported the fiscal policies that got us in this mess, I don't know. Muckety-mucks (like Simpson and Bowles) keep telling the "little people" that we need to make sacrifices. But I doubt that these muckety-mucks have ever waited a table, sorted boxes in a warehouse, worked an assembly line, or toiled in a cubicle. It's easy for them to tell us to make sacrifices, because they don't know any regular people and probably don't think of us as being quite human.

Elizabeth
November 15, 2010 at 11:47 pm

That's a great way to completely tank the housing market even further. How do we continue to elect these idiots?

Gigi
November 15, 2010 at 7:27 pm

The removal of the deduction would harm the middle class the most. Not to mention, it is one of the only factors that helps make homeownership somewhat affordable in the big cities which are already hurting from foreclosures. I say, remove it from 2nd homes and adjust it to the cost of living (using the standards which determine FHA loan limits). Then in areas where the average home costs more, the deduction is more. Where it costs less, the max deduction is less. By doing so, you protect the middle class without using tax incentives for Mansions and vacation homes.

Jon
November 15, 2010 at 5:09 pm

In reference to Natt, I'm not sure how not being able to deduct the interest from your income tax would cause foreclosures. However, I am very much in favor of keeping the deduction like it is and taxing the "Masters of the Universe" a lot more!!!!

Jason
November 15, 2010 at 4:59 pm

People have made major personal financial and budgetary decisions based on the availability of this deduction (indeed, for most people the biggest financial decision in their lives). To disallow it now for current homeowners would be beyond unjust. My decision to have bought a house 2 years ago was based in large part on the tax benefits compared to renting, and my ability to afford the mortgage payments factored in the tax savings on the other end.

Natt
November 12, 2010 at 2:55 pm

I wonder if they considered how many more foreclosures this would cause...I think that there would be a FLOOD of jingle mail if such a bill was passed.