@ mortgage interest deduction

I don't think it is accurate to say that the interest deduction only benefits the wealthy given that it also raises the cost of homes because much of the payment can now be deducted. The likely largest beneficiaries are realtors and other in the indsutry that get a percentage off of each home sold.

I'm all for switching to a credit from a deduction as a means to better benefit lower income groups, but any change needs to be done very slowly lest it further push people into untenable mortgage payments if they suddenly lose the ability to deduct their interest payments.

by Nicoli on Jul 23, 2011 5:17 pm • link • report

Nicoli makes a good point. Perhaps the deduction allowance could be limited (maybe not only temporarily) based on income. This already happens with the child tax credit. You get $1000 per child until you reach a certain income threshold, then the amount begins to be reduced. The threshold is $110,000 for married couples filing jointly, and $75,000 for unmarried taxpayers.

by TJ on Jul 24, 2011 8:27 am • link • report

GGW will link any article that has to deal with bikes vs. cars to further their anti car agenda.

The said article is written by a like minded snob, and after watching the video a reasonable person could only agree with the judge that no assault occurred.

by TGEOA on Jul 24, 2011 10:19 am • link • report

^^Must be frustrating not being able to leave.

by Bob See on Jul 24, 2011 11:01 am • link • report

"Anti-car agenda" Classic.

by thump on Jul 24, 2011 11:54 am • link • report

and after watching the video a reasonable person could only agree with the judge that no assault occurred.

I disagree. From just watching the video it's hard to know exactly what happened. But what we do clearly see is this:

1) Black SUV first passes cyclist too closely - in clear violation of FL's 3 foot law.
2) Cyclist asks motorist at next stop light not to pass so closely.
3) Black SUV then *intentionally* passes again too closely and, according to cyclist's side of story, quickly cuts in front forcing the cyclist to take hard evasive action.

The fact that both a policeman and the DA felt that this WAS an assault tells me that some reasonable people would agree.

This incident is a good example of why we need the anti-cyclist harassment law. While assault may lie in the eye of the beholder it more clearly was harassment.

by JeffB on Jul 24, 2011 2:03 pm • link • report

@TJ

They could gradually start rolling back the value of mortgages that qualify for a deduction from $1 million to $500k as has been proposed in Congress (not sure if there is any traction there).

A credit rather than a deduction would probably be the most equitable and cheapest option in the longer term. I can't imagine that it will happen in this political environment given that it will essentially be an increase in taxes on the upper-middle class and wealthy.

by Nicoli on Jul 24, 2011 7:44 pm • link • report

The fact that both a policeman and the DA felt that this WAS an assault tells me that some reasonable people would agree.

A policeman, a D.A., a judge, and a jury believe that an Atlanta pedestrian woman should held more responsible for an incident than the vehicle's drunk driver. So is that the standard we're going by now?

(for the record, the bicyclist should have been driving in the center of the lane - you should do that anytime if it's not wide enough for in-lane car passing, otherwise you're just asking for a close pass. And the bicyclist was clearing looking for a confrontation, and found one.)

by Kolohe on Jul 24, 2011 8:58 pm • link • report

The problem with the broadshot, "mortgage interest deduction benefits only the rich" is that the mortgage interest deduction does not primarily benefit the rich. It primarily benefits people *trying* to be rich and trying to get into their first house. While the dollar amounts are much higher for the rich (they save more money), the actual need (the subjective 'benefit') is much greater for people paying for their first house or trying to purchase their first house.

Using the HUD budget as the litmus test is hardly an effective argument. As evidenced this year in the WP (are the editors of GGW paying attention?), the HUD has a terrible record of ineffective use of resources. Doubling their budget means 2x as much money is wasted with little benefit. You can't support an organization that has zero internal control and no ability to control it's contractors. It's much better in a Democracy, like the US, to create the economic incentives for the market then give down payment assistance and financial training to would-be homeowners.

Stripping money from the mortgage interest deduction means more people are trapped *needing* HUD help as opposed to taking the first steps towards home ownership and wealth accumulation. We create an even bigger divide between rich and poor because the incremental step of 1st time homeowner is that much more expensive and therefore much harder to achieve.

by eb on Jul 25, 2011 8:07 am • link • report

@eb

"It primarily benefits people *trying* to be rich and trying to get into their first house. While the dollar amounts are much higher for the rich (they save more money), the actual need (the subjective 'benefit') is much greater for people paying for their first house or trying to purchase their first house."

Well, okay, by your arbitrary definition, the 'benefit' is greater for first-time homebuyers. But in practice, much more money is spent by the government (in the form of tax breaks) on the wealthy. To go through this again, because of how it's structured, the benefit can only be claimed by those who itemize deductions (i.e. pretty wealthy), and even among those who are able to benefit from it, it is more valuable for those with higher marginal tax rates (again: the wealthy).

If, as you suggest, the benefit to society is greatest when the subsidy goes to a narrow band of homebuyers, then you're just arguing that the deduction should be drastically restructured to target those homebuyers.

"It's much better in a Democracy, like the US, to create the economic incentives for the market then give down payment assistance and financial training to would-be homeowners."

Why should the government be in the business of subsidizing homeownership for the relatively wealthy anyway? There's very little evidence of much of a benefit to subsidizing this behavior, and the subsidy is incredibly expensive--so even if there were some benefit, it would have to be very large to justify the policy.

by Gray on Jul 25, 2011 8:31 am • link • report

There is seemingly a large segment of GGW readership that wants every piece of economic activity or tax code to solely subsidize low income people.

Let's give those poor people "affordable" housing, food stamps, free healthcare, indefinite TANF welfare, stimulus checks, free school lunches, free smart trips cards, free CaBi memberships, free needles, free counseling, free daycare for their children (even though they don't work). And they shouldn't pay federal income taxes. The only thing I haven't heard yet is free iphones...

I'd actually be OK with dramatically reducing the mortgage interest deduction if it was phase over time. But for pete's sake can we rachet down the direct subsidies the poor in every possible way rhetoric? By all mean's help the children with better schools. But the non-handicapped adults do not need indefinite subsidies to enable their sloth. They need incentive to work, to become literate if they are not so, and to participate in our economy rather than bilk off it.

My mother's side of the family is a bunch of losers who have gone off and on welfare numerous times and bilked my enabling grandfather for 50 years. My mom has only had a job for 6 of her 56 years. During her early 30's my aunt couldn't even arrive on time to her 7-11 cashier job that was 2 blocks away and was terminated. Giving handouts to adults doesn't help them long term. They end up being lazy with no pride. Holding adults accountable for their mistakes/poor choices and letting them no they have to get their shit together is necessary at some point.

The safety net is not a place to live. It's a place to get back on your feet.

by Jason on Jul 25, 2011 9:11 am • link • report

Only the wealthy itemize deductions??? Anyone who has a mortgage should itemize deductions. Everyone I know who has a mortgage, itemizes and none of them are wealthy or upper middle class.

Perhaps in real dollars the rich receive the greater subsidy, but I think you underestimate the benefit the mortgage deduction has for lower and middle class homebuyers.

by ay jayy on Jul 25, 2011 9:15 am • link • report

Only the wealthy itemize deductions??? Anyone who has a mortgage should itemize deductions. Everyone I know who has a mortgage, itemizes and none of them are wealthy or upper middle class.

That's really going to depend on the amount you owe and your income. Most people who don't live in DC metro area (or any of the other dozen or so expensive cities) have, comparatively, much lower housing costs. They also earn less income.

You take smaller interest payments and an income that puts you into the 15% tax bracket and you might find that taking the standard deduction is the way to go.

Personally I don't think the poor or even lower middle class benefit greatly from the MID. Programs such as credits or low money down options might have a bigger impact.

I'm in favor of doing away with the MID altogether but it would have to be, as others have mentioned, a phased approach so as to not deliver another hard blow to the already reeling real estate industry.

by JeffB on Jul 25, 2011 11:42 am • link • report

@ Kolohe,

Let me clarify. What I am saying is that it is reasonable for people to disagree on what is or isn't assault. The law itself allows for that subjectivity.

As for the Atlanta incident. Tragedy such as this often have many causes.
Can we blame the woman for leading her children across a busy road?
Can we blame the driver for not being alert and perhaps even being under the influence?
Can we blame the county for putting a bus stop directly across from an apartment complex with no facility to safely cross the road?
Can we blame suburban design in general that makes it unsafe and difficult to travel without a personal automobile?

by JeffB on Jul 25, 2011 12:01 pm • link • report

Not sure how the mortgage interest deduction turned intoa rant about someone's lazy relatives, but I'll skip that and second JeffB's response to ay jayy. I'm sure the vast majority of homeowners in the DC area, including plenty we don't think of as wealthy, itemize deductions.

But keep in mind that those people you don't think of as wealthy would be well above the median income in many parts of the US. In those places, plenty of people of mdoest means can afford to buy houses but don't make enough to benefit from itemizing deductions.

As I said earlier and JeffB reiterated, the benefit of the deduction varies with your marginal tax rate. Someone making enough to afford an inexpensive house but not enough to pay a high marginal tax rate might not benefit enough to make itemizing worth it.

by Gray on Jul 25, 2011 12:20 pm • link • report

Not to steer way off topic, but how can any of this be discussed without inclusion of the Alternative Minimum Tax?

by Andrew on Jul 25, 2011 12:23 pm • link • report

@Gray, I don't think thats true given the homestead deduction. Even someone of the most modest income who has a mortgage will benefit from itemizing. It doesn't change anything else in the taxes you pay. The only penalty is its a bit more complicated than the straight 1040 or 1040EZ.

by Tina on Jul 25, 2011 12:25 pm • link • report

I just grabbed some number quickly off of google so they are at best ballpark.

The median US household income 2010 - $50,000. That puts a married couple squarely in the 15% tax bracket.

Standard 2010 deduction for married couple: - $11,400

Median price of house in the South, 2010: $150,000

The 2 main things that you itemize are your mortgage interest and your state & local taxes. So the value of these must exceed the value of the standard deduction to make it a better deal to itemize. It's an either or situation. You can either itemize OR you can take the standard deduction.

At 4.5% interest you'll pay $6750 interest on a $150,000 mortgage.

State taxes - some states have no income tax but let's say our couple pays, on average 6% - so $3000 state income tax.

Local Property taxes - let's guess $2000.

Adding it all up:
Standard Deduction : $11,400

Itemized Deduction:
Mortgage Int: $6750
State income: $3000
Local property: $2000
-------------------
total $11750

So it appears it is *just* better for our couple to itemize. But if they make a little less than the median income, live in a state with lower or no income tax, or are several years into their mortgage the standard deduction is going to be a better deal for them.

So I'd say the MID is of little to no value to them whatsoever.

by JeffB on Jul 25, 2011 1:23 pm • link • report

@JeffB - the southern couple in your example is barely paying anything in federal taxes anyway. Less than 1/10 of their income. That is a low burden. I'd hardly say they are getting a raw deal compared to the chump in the upper brackets...

by Jason on Jul 25, 2011 1:53 pm • link • report

@Jason,

Well the "chump" is welcome at anytime to switch places with the southern couple if he feels paying income taxes has become too onerous. I won't hold my breath.

And don't forget that the couple are paying payroll taxes from dollar one for the entirety of their income. So overall their taxed rate might not be very different from that "chump".

So tell me again why we have a housing subsidy for the affluent?

by JeffB on Jul 25, 2011 2:09 pm • link • report