Apparently I'm not the only person who's still worked-up about this. Yesterday's NY Times had an essay calling for the gradual elimination of the mortgage deduction,
http://economix.blogs.nytimes.com/2009/02/24/killing-or-maiming-a-sacred-cow-home-mortgage-deductions/
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Thursday, February 26, 2009
Saturday, February 14, 2009
The Mortgage Interest Deduction has to go!
I have been waiting for years, literally, to buy a house. My wife and I even made offers on a couple of houses back in 2003 (we were outbid, no surprise) before deciding "this market is a bubble" and waiting it out. Now, we're house hunting again and I've been consumed with the idea that prices got oh so high in part because of the home-mortgage interest deduction. In general, I think the deduction has been 'priced-in' to the cost of houses so it doesn't really save anyone money. But when I tried searching for the history of the deduction I found that the issue was much more complicated than just that.
A great source of information is this 2006 NY Times article,
http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?pagewanted=print
Basically, there has been an allowed deduction for 'interest' since the beginning of time (or, at least, the introduction of the American income tax). Until 1986 you could even deduct your credit card interest. Surprisingly, the mortgage deduction is only used by 1/3rd of homeowners? The presumption is that most people don't itemize their deductions, hence they can't claim their interest payments.
Much as I disagreed with him on most issues, I gave kudos to GW Bush for pushing 'tax simplification'. The panel he empaneled even proposed doing-away with the deduction but GW refused to support it, knowing what a political hot-potato it was.
In 2005 there was a widely discussed Slate.com editorial supporting the idea,
http://www.slate.com/id/2130017/
Clearly, there's already been a lot of discussion about the why's so I'll just let those links speak for themselves.
The one thing I wanted to add to the discussion was this suggestion:
Gradually phase-out the deduction at a rate linked to inflation.
In other words, existing homeowners would continue to receive the same deduction they originally expected (and no doubt factored into their purchasing decision). But the deduction would go away as the time-cost of their money also reduced their mortgage cost. So these existing homeowners wouldn't 'get ahead' like they'd expected. The whole point of this (beside 'tax simplification') is that new buyers like myself would get better prices on houses.
.
A great source of information is this 2006 NY Times article,
http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?pagewanted=print
Basically, there has been an allowed deduction for 'interest' since the beginning of time (or, at least, the introduction of the American income tax). Until 1986 you could even deduct your credit card interest. Surprisingly, the mortgage deduction is only used by 1/3rd of homeowners? The presumption is that most people don't itemize their deductions, hence they can't claim their interest payments.
Much as I disagreed with him on most issues, I gave kudos to GW Bush for pushing 'tax simplification'. The panel he empaneled even proposed doing-away with the deduction but GW refused to support it, knowing what a political hot-potato it was.
In 2005 there was a widely discussed Slate.com editorial supporting the idea,
http://www.slate.com/id/2130017/
Clearly, there's already been a lot of discussion about the why's so I'll just let those links speak for themselves.
The one thing I wanted to add to the discussion was this suggestion:
Gradually phase-out the deduction at a rate linked to inflation.
In other words, existing homeowners would continue to receive the same deduction they originally expected (and no doubt factored into their purchasing decision). But the deduction would go away as the time-cost of their money also reduced their mortgage cost. So these existing homeowners wouldn't 'get ahead' like they'd expected. The whole point of this (beside 'tax simplification') is that new buyers like myself would get better prices on houses.
.
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