
The Case Against the Mortgage Interest Deduction - tnorthcutt
http://priceonomics.com/the-case-against-everyones-favorite-tax-break-the/
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koolba
> The largest tax break relates to health care: it makes the premiums paid by
> companies that offer health insurance exempt from payroll taxes.

We really should start with that one. If anything, replace it with an
individual deduction. It'll be a double-whammy. Get rid of this bullshit
subsidy for large corporations and at the same time level the playing field
for small businesses and individuals trying to get coverage.

~~~
nickff
The health insurance exemption only helps the healthcare industry; without
this exemption, people would rather be paid cash than get expensive extra
healthcare benefits. People would probably rather buy their own health
insurance than have an employer choose it, and most employers would rather
offload the trouble of managing health insurance (as many have healthcare
departments, which is not their core competency).

Unfortunately the Affordable Care Act (A.K.A. ACA, Obamacare) cemented
employer-purchased healthcare into place with the employer mandate.

~~~
lotsofpulp
I think it's also possible that a large employer being able to offer health
insurance much more cheaply per employee than a small employer can gives the
large employer that much more advantage over the small one for no reason.

~~~
venomsnake
And it is a way to a job serfdom - the cost of unemployment is greater. And -
is anything worth risking my family health plans for?

Employer provided insurance should stop existing.

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Analemma_
The first comment in that article points out what's really the cherry on the
stupidity cake: it's not even that the mortgage interest deduction is small-
but-at-least-something for middle-class families. For a lot of them it's
_literally zero_ , because it's often less than the standard deduction. Even
leaving aside the political class's counterproductive obsession with
homeownership, the insanity here is of the masses passionately supporting a
$100 billion annual expense that benefits them not one cent.

Just another one of those things that makes me fantasize about a rationalist
dictatorship, before I sigh and return to the real world.

~~~
ams6110
The mortgage interest deduction is the thing that makes it possible to itemize
for most people. Then you also get to deduct your property taxes, your state
income taxes, charitable contributions, other misc stuff.

Any of those things separately is often less than the standard deduction. But
all together they are more, and the mortgage interest is generally the biggest
and the one that pushes it over the top.

~~~
breischl
Fine, but then it's only helping to the extent that the taxpayer is over the
standard deduction. If their mortgage interest was $1000, but they end up just
$1 over the standard deduction then technically it helped - but only by 15
cents (depending on their marginal rate).

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Mz
I agree 100% that we should get rid of this deduction. I owned a 3 bedroom, 1
bath house in Manhattan, KS (an affordable part of the country). I never
qualified for this deduction. The house was too cheap and the interest on the
mortgage was too low.

I was solidly middle class.

This deduction benefits people spending substantial amounts on mortgage
interest, thus it mostly benefits people buying McMansions (or actual
mansions). In theory, middle class individuals in large cities are helped to
qualify for homes because housing prices are so steep in the big city. In
practice, it encourages "house inflation" where The Haves buy and build bigger
and bigger houses and The Have Nots are piled up in rentals like cord wood or
out in the street. If you can afford a house at all, this deduction actively
encourages you to buy as much house as possible. It deepens the divide between
The Haves and The Have Nots, thereby shrinking the middle class, not helping
it. It helps ensure that you are either rich or poor in this country, not
middle class.

~~~
ArkyBeagle
I share your experience - I lived in both Texas and Florida in modest houses,
and I think we could take the MID only once.

It's getting to where it's not that clear that a McMansion is a "have" thing,
especially if it take maxing out the mortgage.

The real difference between "haves" and "have nots" is their credit rating. In
places, the premium for rental may approach 100% of the payment if the same
owner occupied the same house in a 20% down mortgage.

But at the same time, people will max the mortgage out, so selling a 3-1 in
Manhattan, Ks may be a very real challenge.

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donretag
Almost every time that something is subsidized, it will go up in price. A
person's marginal propensity to consume means that if a deduction leads to
money being saved, that money will actually be put toward the same product.
But instead of bigger houses, we get the same house, just priced higher.

Housing prices will be lower without the deduction, actually helping first
time buyers more since the down payment will be more achievable. Alas,
eliminating the deduction will never happen.

~~~
dragonwriter
> But instead of bigger houses, we get the same house, just priced higher.

This seems to assume a monopoly supplier charging monopoly rents, but is an
untenable conclusion if housing is supplied in a competitive market. (It also
neglects the fact that its not a flat subsidy, but one where the subsidy rate
is _positively_ correlated with income, so that -- within the limits of the
deduction -- higher income earners get a higher subsidy rate, and thus the
spread in buying power between them and lower-income earners is _increased_ by
the existence of the deduction, which even in a monopoly-supply situation
would mean that the effect across the market was not "everyone gets the same
houses as they would without the subsidy, just at higher prices".)

~~~
aab0
Land is fixed, so the greater ability to pay from the subsidy simply increases
the 'rent' earned by landowners. To a great extent, one gets the same house on
the same land, but priced higher.

~~~
bufordsharkley
> Housing is not land, and quite often in the United States is not provided in
> a way which makes maximum practical use of land, so land being fixed is
> pretty much irrelevant to whether housing supply is fixed.

It's clearly relevant-- the fixed nature of land makes is what limits the
supply of housing. Both due to the obvious situation -- we can't build housing
because there's no available land for it-- as well as the more complicated
case where the limited supply of land is downzoned to create wealth for
landowners.

> If "landowners" were a single monopoly supplier, this, again, would be a
> reasonable conclusion. The ability to capture value from the subsidy,
> however, depends on the ability to provide value from housing on that land,
> something on which landowners naturally compete.

It is uncommon for them to compete. It is much more common to enact
restrictive zoning laws (and other bureaucratic measures) so they do not have
to.

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danhak
Unfortunately the mortgage interest deduction is a major third rail in U.S.
politics and it is probably here to stay.

This article is 100% spot on though--it is a completely regressive policy and
privileges those with enough capital to purchase real estate at the expense of
those who have no choice but to rent.

~~~
underbluewaters
Yep. While in the abstract I would support eliminating it, now that I've
finally purchased a home I'm against any changes to the status quo. The very
economics of this huge purchase are only made rational by that deduction.

~~~
maxerickson
What about phasing it out over 20 years?

The deduction related to the purchase decision you just made will be a lot
smaller by then and you would know what the new rules were for future
decisions.

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tzs
> Countries including Iceland, Luxembourg, and Switzerland, in fact, tax
> homeowners for “imputed rent”: the amount of income homeowners would earn if
> they rented out (rather than lived in) their home.

Do homeowners in those countries also get imputed deductions for whatever
things people who are actually running rental businesses get to deduct?

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tormeh
Housing prices are whatever people are able to pay. If everyone's able to take
up a bigger loan thanks to mortgage interest deduction, then house prices will
rise to meet the increased demand. End result: We have to effectively pay the
same (bigger loan but with tax deduction), but because everyone takes up
bigger loans the national economy becomes more brittle.

Yay? It's just the government pushing money into the construction industry,
which really is the only beneficient, and it's all disguised as a gift to the
middle class. It's just dumb.

~~~
dragonwriter
> Housing prices are whatever people are able to pay.

I fail to see the justification for concluding that housing prices are set by
demand alone, not the usual interaction of supply of demand.

~~~
tormeh
The short-term supply of housing is fixed. Yes, there will be an increase in
renovation of houses due to larger loans being affordable, but most of our
housing costs are the cost of _centrally_ located floorspace anyway, whose
supply moves really slowly. Supply of central floorspace increases due to mass
transit buildout, city expansion, and building height, only the last of which
depends on average ability to pay for housing. Building height is usually
restricted by zoning, in which case average ability to pay doesn't influence
supply at all.

~~~
dragonwriter
> The short-term supply of housing is fixed.

Sure, so the immediate-term effect of a change in policy on the deduction
would be what you would expect with a fixed supply; but that's hardly the
only, or most important, effect to consider with a long-term policy.

~~~
bufordsharkley
Land-use policy makes it far more attractive to resist growth, enact
restrictive zoning laws, and engage in speculation, rather than listen to the
signals of demand. This has been the case for the last century, and without a
fundamental change in our policy, will almost certainly continue to be the
case.

A land tax would be the silver bullet here-- it would align the incentives for
landowners to listen to rises and falls in demand.

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salimmadjd
Isn't this just an indirect subsidy for banks? Basically, the government
partially pays for the interest rate the bank charge on your mortgage.

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acbabis
> For this reason, organizations like the Congressional Budget Office treat
> tax breaks and government spending as essentially equivalent.

This seems weird. Collecting and spending money has overhead and externalities
(enforcement for example), while not taxing in the first place does not.

~~~
acbabis
Now that I think about it a little more, this seems like a red herring. Just
because the _budgeting_ office says two numbers are the same on paper, doesn't
mean anything about the efficacy of the policy, for or against.

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thebigspacefuck
I bought my first house and only made 4 payments which brought me over the
standard deduction. I only put 5% down though and I live in a more expensive
area than most.

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matt_wulfeck
> It first appeared in 1861, born out of a necessity for Civil War funding,
> and in 1913, Congress made the income tax a permanent part of American life.

And federal income tax should again be eliminated. The federal government
should get fed from the hands of the state, not the other way around. Having
all of the money flow down from the top is helping to create this mess we're
in now.

The one that controls the purse holds the real power. Federal income tax is
consolidating that power at the top.

~~~
Mz
If you read the history, the form of government the US has failed and failed
and failed while trying it the way you describe. The US was on the verge of
collapse when it re-arranged things a bit and handed over more power to the
federal government. That's why the country still exists. In its earliest days,
it was in danger of collapse just like every other state that had attempted
the same kind of organization.

If we take away the federal government power to a) raise money and b) keep a
standing army we will likely see this country destroyed in short order,
whether from within or from without. Quite a few countries would be thrilled
to pieces if we hamstrung our federal government so they could invade and do
as they please.

~~~
matt_wulfeck
This country seems quite capable of destroying itself in short order
regardless.

Now we have unstoppable constitutional rights abuses and endless drone wars in
far away lands. Not to mention a lobbying apparatus that can concentrate
"donations" to less and less people to get its way.

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matt_wulfeck
> the mortgage interest tax deduction, which, at an annual estimated cost of
> $77 to $100 billion...

Oh please. What a puny number that benefits such an enormous amount of regular
people.

The cost of war in Iraq is estimated at $12 billion _a month_ [O]. Eliminating
this deduction wouldn't even buy us another senseless and irresponsible war!

[0] [http://www.businessinsider.com/the-iraq-war-by-
numbers-2014-...](http://www.businessinsider.com/the-iraq-war-by-
numbers-2014-6)

~~~
breischl
>>What a puny number that benefits such an enormous amount of regular people.

Well, I guess that depends on your definitions of "puny" and "regular". Since
75% of the benefit goes to people making over $100k/year, that must be your
definition of "regular people." Which isn't really statistically defensible,
but might be your personal experience. I'm not sure $100bn really counts as
"puny" even to the Feds, though. Granted 3% of last years' revenues isn't a
huge number, but neither is it a rounding error.

Personally, I think it's absolutely silly to forego tax dollars to encourage
people to go into debt. Not that I'm above taking advantage of it every year,
and probably deriving more benefit from it than most.

I'm still trying to figure out what any of this has to do with the Iraq war,
though.

~~~
sokoloff
> 75% of the benefit goes to people making over $100k/year

It's much closer to _households_ making over $100K/yr than _people_ making
that.

