Mortgage Interest Deduction Big in Budget Play

[OhioChick]

Published: Monday, 25 Jul 2011 | 12:19 PM ET

It's not like the housing market needs any more headwinds, so here's the government potentially giving us another: The mortgage interest deduction is back in big play in the budget deal.

It never exactly came off the table, but the bigger the budget deal, the more likely the mortgage deduction will take a bigger hit.

Right now, home loan borrowers can deduct the amount of interest they pay on their mortgages from their taxable income. This goes for principal residences and second homes. The interest deduction is capped at the first million dollars of debt on the home. For home equity loans it's capped at $100,000 in debt.

The deduction costs the U.S. Treasury about $100 billion a year. There are proposals now to either reduce the cap to $500,000 and/or to eliminate the deduction on second homes. Eliminating the deduction on second homes would save about $15 billion, and reducing the cap to $500,000 would save another $15 billion, according to economist William Wheaton at MIT. 10.5 percent of existing home sales in June were of homes over $500,000 according to the Mortgage Bankers Association.

More: http://www.cnbc.com/id/43882179

[msongs]

1. home owners bite the big one while corporations rape America thanks to congress/president nt

[FreakinDJ]

2. It would hold down home prices the way they are doing it

[still_one]

3. It penalizes those in states such as New York and California where the prices are higher than other

Areas of the country

[DURHAM D]

4. good

[banned from Kos]

5. Killing the mortgage interest deduction is VERY progressive

inexpensive homes have lower interest and that interest paid is usually absorbed by the standard deduction.

And of course - renters get nothing from a mortgage deduction.


The only drawback is backlash from middle income people who buy too much house (which is quite a few folks).

[PurityOfEssence]

6. Another attempt to divide the have nots and the have a littles

We were expecting this deduction; it's been there and inviolable for a long time. With this understanding, we staked our claim, helped sustain society and gushed money into property taxes that benefit everyone.

Just as unions are vilified to get the support of non-union workers and inculcate jealousy for these "unfair advantages", and just as affirmative action is used to splinter off white working-class voters, this is another bit of divide and conquer. The real rich own. It would be great for them if everyone was a renter.

Regardless of the "fairness" of some middle class people getting a bit of a break for taking a stake in things, the jarring reality of pulling the rug out from under people in a broad way during a crisis economy is just plain reckless. Such disruption would hurt everyone.

Yes, I have a mortgage.

[bhikkhu]

7. The changes would be toward greater wealth equality

If you want to look at it as a tax increase (as has become fashionable for any revenue generation), this would essentially be a tax on someone's second house. If you can afford two houses, you're pretty high up the ladder.

And it would essentially raise the tax for houses costing $500,000 to $1 million. If you can afford a house in that league, again you are pretty high up the ladder. I know some people would say "that's not that much" and some areas are just that expensive, but the tax break itself is a part of levitating house prices so artificially high - removing it levels the field a bit, which is what its all about.

In any case, you can't reduce the huge problem we have with income and wealth inequality without making some changes that actually make a difference. This would make a real difference.

[Incitatus]

8. 30 billion, eh?

The federal government has "appropriated over $1 trillion for the wars in Iraq and Afghanistan to date, more than $700 billion to Iraq and $300 billion for Afghanistan," Obey noted

http://articles.cnn.com/2010-07-27/politics/house.war.funding_1_iraq-and-afghanistan-funding-bill-al-qaeda?_s=PM:POLITICS

The article is from last year.

[blkmusclmachine]

9. Debtors prisons next, one way or the other, huh?