Excerpts from
http://www.nytimes.com/2006/03/05/ma...duction.1.html


Economists don't agree on much, but they do agree on this - the
interest deduction doesn't do a thing for homeownership rates. If you
eliminated the deduction tomorrow, America would have the same number
of homeowners.

The deduction might help some people to purchase bigger homes than
they otherwise would. But it is hardly the democratic subsidy people
think it is. In fact, it's patently regressive.

Cumulatively, the deduction is a big deal. This year, it is expected
to cost the Treasury $76 billion. And the rewards are greatly skewed
in favor of the moderately to conspicuously rich. A little over half
of the benefit is taken by just 12% of taxpayers, those with incomes
of $100,000 or more.

It's hard to imagine that Congress would intentionally legislate such
a rich-get-richer handout, but the origins of the deduction are so
obscure that the myth about it persists. Congress has done plenty of
things over the years to support homeownership, but the deduction
wasn't one of them. The mortgage deduction was largely accidental.

At the beginning of 2005, President Bush appointed a nine-member,
bipartisan panel, which asked the taboo question of whether
homeownership and the interest deduction were related. It decided that
they weren't. One reason is that homeownership in the US is about the
same as it is in Canada, Australia, and England, where interest isn't
deductible.

Another reason is just common sense. If you want to increase
homeownership, you have to do something so that renters become owners.
But just over two-thirds of all taxpayers, including most renters,
don't itemize their deductions, generally because they don't earn
enough - they simply take the standard deduction. The mortgage
deduction doesn't help them.

Most taxpayers who do itemize come from the wealthiest one-third. They
would own a home regardless.

The interest deduction is one of the biggest tax breaks, right behind
health-care premiums paid by corporations, which are tax-free to the
employees. Though many of the tax deductions help some worthy
individual or group, they come at a large total cost to everyone else.

Since 1986, there have been some 15,000 amendments to the tax code,
always to help some interest or other, but each time distorting
free-market incentives. To an economist, when someone invests for
profit, that's good. When they invest to take advantage of a tax
break, that's bad. It's a standard canon of economics. It means that
capital is being diverted from its best use, and the economy suffers
as a result.

You can think of the mortgage deduction as a distortion that has
helped potential home sellers - not buyers or owners. Research
suggests that without the deduction, people would still buy the houses
they do now - they would just cost a little less. In effect, the
market would adjust downward to reflect some of the decrease in
buyers' purchasing power. A plausible estimate is that prices at the
upper end of the housing spectrum would fall by 10 to 15%.

The real-estate industry prefers a protected market to a free one. It
argues that capital would drain out of housing. But tax policy was
never intended to function as a price support.

If you scratch deeply enough, not even the real estate lobby thinks
that the interest deduction makes much sense economically. It's just a
goody that homeowners, not to mention real-estate agents, have grown
used to. Owning stocks is good for society, but stockbrokers don't get
a handout from the feds.

A more salable approach would be to kill the deduction in stages, by
gradually reducing the $1 million ceiling over many years. Over time,
it would simply disappear. Congress should do that. The deduction is
overrated as an icon, and as tax policy it is misdirected and unfair.

But don't hold your breath. Homeownership and a level playing field
are always good for a speech. But they are nothing compared with
propping up housing prices. And that is what the mortgage deduction is
all about.


--

Unfortunately, the thoughtless are rarely wordless.

....Unknown

Steve wrote:
Excerpts from
http://www.nytimes.com/2006/03/05/ma...duction.1.html


Economists don't agree on much, but they do agree on this - the
interest deduction doesn't do a thing for homeownership rates.


Reference and links please. I sincerely doubt any credible ones will
be forthcoming. Anyone who has taken even a basic economics course
knows that when you subsidize something, you get more of it.






If you
eliminated the deduction tomorrow, America would have the same number
of homeowners.

The deduction might help some people to purchase bigger homes than
they otherwise would. But it is hardly the democratic subsidy people
think it is. In fact, it's patently regressive.

Cumulatively, the deduction is a big deal. This year, it is expected
to cost the Treasury $76 billion. And the rewards are greatly skewed
in favor of the moderately to conspicuously rich. A little over half
of the benefit is taken by just 12% of taxpayers, those with incomes
of $100,000 or more.

It's hard to imagine that Congress would intentionally legislate such
a rich-get-richer handout, but the origins of the deduction are so
obscure that the myth about it persists. Congress has done plenty of
things over the years to support homeownership, but the deduction
wasn't one of them. The mortgage deduction was largely accidental.

At the beginning of 2005, President Bush appointed a nine-member,
bipartisan panel, which asked the taboo question of whether
homeownership and the interest deduction were related. It decided that
they weren't. One reason is that homeownership in the US is about the
same as it is in Canada, Australia, and England, where interest isn't
deductible.

Another reason is just common sense. If you want to increase
homeownership, you have to do something so that renters become owners.
But just over two-thirds of all taxpayers, including most renters,
don't itemize their deductions, generally because they don't earn
enough - they simply take the standard deduction. The mortgage
deduction doesn't help them.

Most taxpayers who do itemize come from the wealthiest one-third. They
would own a home regardless.

The interest deduction is one of the biggest tax breaks, right behind
health-care premiums paid by corporations, which are tax-free to the
employees. Though many of the tax deductions help some worthy
individual or group, they come at a large total cost to everyone else.

Since 1986, there have been some 15,000 amendments to the tax code,
always to help some interest or other, but each time distorting
free-market incentives. To an economist, when someone invests for
profit, that's good. When they invest to take advantage of a tax
break, that's bad. It's a standard canon of economics. It means that
capital is being diverted from its best use, and the economy suffers
as a result.

You can think of the mortgage deduction as a distortion that has
helped potential home sellers - not buyers or owners. Research
suggests that without the deduction, people would still buy the houses
they do now - they would just cost a little less. In effect, the
market would adjust downward to reflect some of the decrease in
buyers' purchasing power. A plausible estimate is that prices at the
upper end of the housing spectrum would fall by 10 to 15%.

The real-estate industry prefers a protected market to a free one. It
argues that capital would drain out of housing. But tax policy was
never intended to function as a price support.

If you scratch deeply enough, not even the real estate lobby thinks
that the interest deduction makes much sense economically. It's just a
goody that homeowners, not to mention real-estate agents, have grown
used to. Owning stocks is good for society, but stockbrokers don't get
a handout from the feds.

A more salable approach would be to kill the deduction in stages, by
gradually reducing the $1 million ceiling over many years. Over time,
it would simply disappear. Congress should do that. The deduction is
overrated as an icon, and as tax policy it is misdirected and unfair.

But don't hold your breath. Homeownership and a level playing field
are always good for a speech. But they are nothing compared with
propping up housing prices. And that is what the mortgage deduction is
all about.


--

Unfortunately, the thoughtless are rarely wordless.

...Unknown

In article ,
Steve wrote:

Cumulatively, the deduction is a big deal. This year, it is expected
to cost the Treasury $76 billion.


Interesting wording. Another way to put it is that it saves taxpayers
$76 billion. The reality, though, is that without the deduction housing
prices would probably be lower and so would property taxes. A good way
to transfer money from local government to the feds, I suppose. That
always works out so well.


But don't hold your breath. Homeownership and a level playing field
are always good for a speech. But they are nothing compared with
propping up housing prices. And that is what the mortgage deduction is
all about.


No kidding. Why would voters want to change the rules of the game in
the middle? There used to be deductions for rent, interest on personal
loans, and so on. The people shilling for eliminating the deduction
apparently feel it is acceptable to screw homeowners in favor of
transferring more money to the feds.


Dimitri

On Mon, 6 Mar 2006 09:01:23 +0000 (UTC),
(D. Gerasimatos) wrote:

No kidding. Why would voters want to change the rules of the game in
the middle? There used to be deductions for rent, interest on personal
loans, and so on. The people shilling for eliminating the deduction

Our system of government is based on bribery. Homeowners in general
are the "great silent majority" which Nixon claimed as his base of
support. They need their bribes one way or another. If we eliminate
their mortgage deduction, we have to provide some other bribe in its
place.

It's easier to take bribes away from renters, because they tend to be
more transient and less likely to vote. The present administration
did provide a bribe for poor people, as a paid-in-advance tax credit
in 2003, to "stimulate the economy." But, in general, the poorer the
voter, the less cost effective the bribe, because the lower they are
on the riff raff scale, the more of them there are, and the lower the
percentage voting.

In article , (D. Gerasimatos) wrote:
In article ,
Steve wrote:

Cumulatively, the deduction is a big deal. This year, it is expected
to cost the Treasury $76 billion.

Interesting wording.

Interesting wording indeed -- it betrays the attitude so common on the left
that all of your money belongs to the government, and you should have only as
much as they decide to allow you.

Another way to put it is that it saves taxpayers $76 billion.

I like that way better. It's our money to begin with.

--
Regards,
Doug Miller (alphageek at milmac dot com)

It's time to throw all their damned tea in the harbor again.

(Doug Miller) wrote:
Cumulatively, the deduction is a big deal. This year, it is expected
to cost the Treasury $76 billion.

Interesting wording.

Interesting wording indeed -- it betrays the attitude so common on the left
that all of your money belongs to the government, and you should have only as
much as they decide to allow you.

Another way to put it is that it saves taxpayers $76 billion.

I like that way better. It's our money to begin with.

So I should subsidize your house?


--

Unfortunately, the thoughtless are rarely wordless.

....Unknown

In article , Steve wrote:
(Doug Miller) wrote:
Cumulatively, the deduction is a big deal. This year, it is expected
to cost the Treasury $76 billion.

Interesting wording.

Interesting wording indeed -- it betrays the attitude so common on the left
that all of your money belongs to the government, and you should have only as
much as they decide to allow you.

Another way to put it is that it saves taxpayers $76 billion.

I like that way better. It's our money to begin with.

So I should subsidize your house?

Congress, in its infinite wisdom, decided some years ago that increasing the
rate of home ownership is a net benefit to the nation, deserving of subsidy,
and thus, according to Congress, yes, you should subsidize my house. If you
don't care for the law as it presently exists, ask your CongressCritter to
introduce a bill to change it. Or buy a house of your own, so that you're on
the other end of the subsidy.

Ideally, there would be no income tax at all, and the question would be moot.
Funds should be raised -- as the Founding Fathers intended -- through excise
and sales taxes, i.e. consumption taxes.

--
Regards,
Doug Miller (alphageek at milmac dot com)

It's time to throw all their damned tea in the harbor again.

(D. Gerasimatos) wrote:

Cumulatively, the deduction is a big deal. This year, it is expected
to cost the Treasury $76 billion.


Interesting wording. Another way to put it is that it saves taxpayers
$76 billion.

Precisely. And it generates revenue for the states from all the sales taxes
taken off building supplies & furnishings.

In misc.consumers.house wrote:
Steve wrote:
Excerpts from
http://www.nytimes.com/2006/03/05/ma...duction.1.html


Economists don't agree on much, but they do agree on this - the
interest deduction doesn't do a thing for homeownership rates.

Reference and links please. I sincerely doubt any credible ones will
be forthcoming. Anyone who has taken even a basic economics course
knows that when you subsidize something, you get more of it.

Exactly. You subsidize college education and you get higher tuition bills.
You subsidize mortgage interest and housing costs increase.

Cumulatively, the deduction is a big deal. This year, it is expected
to cost the Treasury $76 billion. And the rewards are greatly skewed
in favor of the moderately to conspicuously rich. A little over half
of the benefit is taken by just 12% of taxpayers, those with incomes
of $100,000 or more.

You say that like its a bad thing.

http://www.ntu.org/main/page.php?PageID=6

Note that AGI does not include the mortgage interest deductions so those
'rich' people are shouldering that much of the tax burden despite the
mortgage interest deduction being taken after AGI.

It's hard to imagine that Congress would intentionally legislate such
a rich-get-richer handout, but the origins of the deduction are so
obscure that the myth about it persists.

IMHO, it is not a hand out or a reward. Its a hand back of their own money.

Households with an AGI over $95k (approximately the top 10%) pay ~66% of
the personal income taxes. This is over 1.1 trillion dollars despite the
mortgage interest deductions.

Is an extra 76 Billion that big a deal? How much could our government save
by not wasting money trying to build huge bridges in Alaska that serve a
few dozen people, harassing innocent air travelers, and invading a country
that had no connection to 9/11?

(Doug Miller) wrote:
Congress, in its infinite wisdom, decided some years ago that increasing the
rate of home ownership is a net benefit to the nation, deserving of subsidy

Not quite true - the mortgage interest deduction was more of an
accident than a considered plan.

According to the article -

The first modern federal income tax was created in 1894. Interest -
all forms of interest - was deductible, but the Supreme Court ruled
that the tax was unconstitutional. In 1913, the Constitution was
amended and a new income tax was enacted. Once again, interest was
deductible.

There is no evidence, however, that Congress thought much about this
provision. It certainly wasn't thinking of the interest deduction as a
stepping-stone to middle-class homeownership, because the tax excluded
the first $3,000 (for married couples, $4,000) of income. Less than 1%
of the population earned more than that. The people paying taxes did
not need the deduction to afford their homes or their yachts.

There is another reason Congress could not have had homeownership in
mind. The great majority of people who owned a home did not have a
mortgage. Most folks bought their homes with cash - they had no
mortgage interest to deduct.

When Congress made interest deductible, it was probably thinking of
business interest. Just as today, the aim was to tax a business's
profits after expenses had been netted out, and interest was an
expense like any other.

In a nation of small proprietors, basically all interest looked like
business interest. Whether it was interest on a farm mortgage, or
interest on a loan to purchase a tractor, or interest charged to a
general store that purchased its inventory on credit, it all would
have looked like a business expense. Credit cards did not exist. So
Congress just said deduct it.

It was not until the 1920's and the spread of the automobile that home
mortgages outnumbered farm mortgages. In the 1930s, the mortgage
industry got a huge assist from the feds - not from the tax deduction,
but from agencies like the FHA, which insured 30-year loans, and
Fannie Mae. Before then, the corner bank would issue a mortgage and
wait for the homeowner to pay them back. Now, savings and loans could
replenish their capital by selling their mortgages to Fannie Mae,
meaning they could turn around and issue a new mortgage to someone
else.

It wasn't until after 1950 that the majority of homeowners had
mortgages. And thanks to ready financing, renters suddenly became
owners. It was in those postwar years, when people were getting their
first mortgages, that Americans discovered the joy of the interest
deduction. Over time, it evolved into a birthright.

The growth of credit cards in the 70s began to turn the interest
deduction into a serious loophole. People were becoming plastic
junkies - if you paid for a washing machine on credit, the IRS would
give you a subsidy.

By the 1980s, this threatened the entire system of revenue collection.
There was some talk that the Treasury was looking at eliminating
deductions, including, possibly, the interest deduction. Economists
thought it was a good idea. Tax economists tend to be skeptical about
preferences in the tax.


--

Unfortunately, the thoughtless are rarely wordless.

....Unknown

jdoe wrote:
So I should subsidize your house?

exactly how do you subsidize his house? you probably don't pay ANY
income taxes

I'm certain that everyone appreciates your usual exceptionally useful
contribution to the discussion.


--

Unfortunately, the thoughtless are rarely wordless.

....Unknown