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Is The Mortgage Interest Tax Deduction Going Away?

17 November 2010 10 Comments

There has been recent talk about the possibility of the mortgage interest tax deduction going away.  First, Obama made some brief comments about it, then his debt commission included it as a possible way to improve the fiscal situation of the Federal government.

First off, the deduction isn’t going anywhere.  We’ll talk about whether it should go away in a second, but you can be assured that even if it is the right move, your politicians don’t have the backbone to push that on the American people.

Secondly, it would definitely impact housing and have a negative effect on home values.  I don’t necessarily include this as a reason to not remove the tax deduction, because I don’t believe in propping up markets based on government incentives and programs, but I’m just stating the facts – the interest deduction does help home prices.

So, should the tax deduction go away?  Yes and no.

I think in the long run, it absolutely should go away.  I completely disagree with government propping up markets, and I completely disagree with government incentivizing debt (rather than productivity).

Now, in the short run, I don’t think it should be touched for a couple reasons.  First, it would only put a small dent in the overall budget and deficit problems (unless entitlements are addressed, it’s all for show anyways).  Secondly, I think there are so many other things that could be done before addressing the mortgage interest deduction.  As I said before, once all the other things have been done, then maybe you could look at this program.

So, there’s my thoughts on whether it should be done or not and when.

As I said, the deduction isn’t going anywhere so don’t worry about it at all.  Housing is the holy grail of American economists and politicians and messing with it is like almost anti-American (yes, this is silly).  Housing is the epitome of what it means to be an American!  The American Dream!

So, politicians will not vote to kill the interest deduction.  Just isn’t gonna happen.


  • Jeff said:

    If politicians continue to worry about being reelected and not making the tough decisions to fix the national debt we are in serious trouble. As this administration tries to lessen the debt by printing money to pay for it, our dollar becomes more worthless by the day. The problem is when they try to make a big deal out of problems like this tax deduction.

  • Terry said:

    Re: First off, the deduction isn’t going anywhere. We’ll talk about whether it should go away in a second, but you can be assured that even if it is the right move, your politicians don’t have the backbone to push that on the American people.

    Secondly, it would definitely impact housing and have a negative effect on home values. I don’t necessarily include this as a reason to not remove the tax deduction, because I don’t believe in propping up markets based on government incentives and programs, but I’m just stating the facts – the interest deduction does help home prices.

    First, I agree that the deduction isn't going anywhere. This country was founded by property owners who gave themselves a monopoly on voting rights, and more than 200 years later, this country remains all about property owners.

    Second, the fact that this country is all about property owners leads inevitably to the political decision to use the vast power of government to prop up home values.

    Never mind that renters get to pay for all this, but it's not nor and never has been about them.

  • 20smoney said:

    Well those are some interesting comments. I don't really agree w/ much of that since very few people are actually "property owners" — the banks own it all essentially, since most people don't own their homes, they have a mortgage on their homes.

    Furthermore, I'd say we are more of a entitlement society where we vote for the person who will give us the most versus an aristocracy type system dominated by land owners or whatever.

    When you have the degree of wealth redistribution that we have built into the system, I'm not sure that you could say we have a monopoly of property owners and how the renters have to pay for everything.

  • TaJ said:

    It's worth remembering that the mortgage interest deduction is a historical anomaly – initially ALL interest was deductible. Business expenses were deductible, interest was a business expense, ergo interest was deductible. We've come away from that but there are still remnants such as mortgage interest.

    If you look at the history of it, it's clear the goal isn't to subsidize property OWNERSHIP per se, so much as property INVESTMENT.

    Just like any other business or investor, everyone with a piece of the real estate pie is going to lobby madly to keep their preferential treatment alive.

    And property investors don't have a political monopoly, but they do have a history of being very effective at getting what they want. Just look at how many states have caps on property tax rates, or the rise of homeowners associations… How many states have ever had voter initiatives to cap sales taxes, or even the estate tax?

  • andrewbpaterson said:

    Canada does not have this tax deduction. I read a book called The Smith Manoeuver, which is somewhat of a work-around:

    1. get a re-advanceable mortgage
    2. invest home equity
    3a. throw investment income (dividends, rental income, etc.) at the mortgage
    3b. deduct interest on home equity loan
    4. invest home equity gained from 3a and 3b

    It's quit a work-around, requiring strict paper-records.

    When I heard that the US gives a tax deduction on mortgage interest off the top, I was completely floored!!! I hope the US gov gets rid of it, but not because of spite, but because I agree with your statement:
    "I completely disagree with government propping up markets"

  • Terry said:

    Interesting, I had heard of the Smith Maneouver but wasn't familiar with the details.

    Property INVESTMENT isn't really subsidized THAT much. In most states, property taxes are higher on investment property (more specifically, all taxable real property other than an owner-occupied farm or primary residence. So the tax codes give a (greater) preference to property OWNERSHIP than to property INVESTMENT.

    And state and local land-use laws and zoning codes are heavily weighted toward the preference of OWNERSHIP more than INVESTMENT. Local rules often grudgingly acknowledge property rights of investors (because they have to, under pain of lawsuit, legal expense, reversal, damages, etc), while avidly protecting the interests of homeowners. I've read a number of local zoning codes, and the protection of incumbency (i.e. OWNERSHIP) is egregious.

    And while there is certainly a lot if INCOME redistribution going on, any WEALTH redistribution is flowing upward, not downward.

    An inconvenient truth is that life is regressive, and wealth naturally flows upward. The dollar value of homeowner tax breaks far exceeds government rental assistance. Not to mention that those homeowner tax deductions allow buyers to bid up the price of housing – if you can afford a $2000 monthly mortgage payment and your mortgage tax deductions save you $400 per month, you now can afford to buy 20 percent more house.

    Those higher housing prices bite renters in the form of being priced out of ownership and in higher rents.

  • tomtom200 said:

    A million dollar house would be worth 700 thousand with this kind of logic.This would there by destroy trillions of dollars in wealth of which in most cases represent most of older people,s retirement income when they sell it.
    The reason is lets say that you are paying 5.5 percent interest on a 750 thousand loan of 15 yearswhich off the top of my head would be about 4,300 a month.Of which lets say 3,200 would be interest.That comes to 38 thousand a year off you taxes.That would save you in most high tax states around 17,000 a year on your taxes.That comes out to 1,400 a month your and your furture buyer of your house would lose each and every year.There goes at least 300 thousand to your value.Some may say ttaxes would be much lower so you will actually save money.That would be good for people in government who are already over paid in salary and especially overtime,benifits and pensions.Every body else would have their salaries go down because they would have more disposable income with a low flat tax.
    So I tell you all do not screw around with the tax deduction for mortgages.There would be a slow down in the ecomony like that would make 2009-10 look like the good old day.No body would do home improvements and would feel very poor.

  • FP Cast said:

    Renters DO NOT PAY EQUAL TAXES IN PROPERTY as suggested. When renting a single family home a renter does pay the tax in the rent. I’ve executed some intereresting research on property taxes across the Country. In multi-plex apartment units the average renter pays less than 26% of the property taxes levied on single family dwellings. Why is this since renters use the same city and state services such as police, fire, roads, schools, libraries. My tax bill as a homeowner of a $250,000 property is $1,500.00 annually. The same dweller in a rental apartment is only portioned approx. $300.00 annually when assigned per apartment unit, which is calculated into rental apartments monthly rent fees. Anyone who projects renters pay the same property taxes as homeowners, is simply misrepresenting the facts. Period. Keep it real…or don’t expect to be taken seriously in these discussions.Now before you swell of renting populaion come out in droves and spew your ignorance about this little known fact, do some research yourself before making claims. Ignorance is bliss…

  • grwoman1 said:

    My husband and I rent, after YEARS of owning a home; I do not propose that we pay the same amount of property taxes, and quite frankly am glad we do not. On the other hand, we do not get that HUGE tax writeoff at the end of the year … that goes to our property owner, as well it should!!

    I hope you are not suggesting the renter should pay the same … that's the upside to renting. We pay the property owner whatever agreed upon fee for them to take care of things. If you want to come over to this side of the fence, it's always a choice. 🙂

  • Reg said:

    The vacation homes property tax and mortgage interest deductions should be cut. Not the homeowner who is struggling in this economy who could never afford a vacation home or RV. Again they want to cut the middle class of one of the dedutions we get. The rich are the ones who can afford a vacation home or RV.