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Jul 02nd
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Is home mortgage interest deduction coming to end?

homeloans030411_optBY GERALD J. ROBINSON

The home mortgage interest deduction, one of our most cherished and expensive tax subsidies, may be on its way out. If the recommendations of President Obama’s National Commission on Fiscal Responsibility and Reform are part of a deficit reduction package, the mortgage interest and other itemized deductions are toast.

More than 35 million Americans claim it, at an estimated cost to Uncle Sam of $131 billion in forgone revenue for 2012. Its sheer size and popularity has made it a political third rail. Cynics think Congress won’t dare touch it.

Maybe so, but with growing numbers of Americans coming to understand that the trajectory of our mounting deficits and national debt is likely to bring us a financial catastrophe, political pressure for wiping out tax subsidies is growing stronger.

Now the breathtaking magnitude of the country's fiscal problems—a $1.3 trillion deficit last year and a steeply-mounting $14 trillion debt overall—may have the effect of a cold shower. Some Republicans and Democrats, concerned about our fiscal path as a matter of national security, are starting to work together to craft plans to reduce the deficit through both expenditure reductions and closing the backdoor subsidies implemented through the tax code.

What is the rationale for the mortgage interest deduction? Its off-claimed virtue of encouraging home ownership is wide of the mark. Our northern neighbor Canada, for example, has roughly the same level of home ownership as we do, but no mortgage interest deduction.

And why subsidize the ownership of homes with a tax deduction and not other assets? Like automobiles? Or boats?

And what about the discrimination against tenants? Why should homeowners be permitted to deduct payments of mortgage interest and real estate taxes while residential rent is a wholly nondeductible personal expense. Insult is added to injury by the fact that part of the tenant’s rent is indirectly attributable to the landlord's deductible real estate taxes and mortgage interest.

The current tax code is riddled with deductions and credits that are nothing but out-of-sight back-door federal outlays, amounting to over $1 trillion of lost tax revenue, including the loss caused by the homeowners’ mortgage interest subsidy. There’s no likelihood of serious deficit reduction without slashing these out-of-sight costs.

The resistance of entrenched and lobby-rich industry groups to the elimination of the deduction will be a tooth and nail fight. “The mortgage interest deduction is one of the pillars of our national housing policy,” according to the Mortgage Bankers Association. “Limiting its use will have negative repercussions for consumers and home values up and down the housing chain.”

The National Association of Realtors with its huge army of real estate agents and lobbyists will perhaps be the most formidable foe. No sooner was a plan announced for the interest deduction’s elimination than it issued a “Call for Action” to its members encouraging them to make “quick phone calls to lawmakers asking them to defend the deduction from any cuts or reduction.” According to this industry group, “the mortgage interest deduction is vital to the stability of the American housing market and economy.”

But if it’s vital to the stability of the American housing market and economy, how come it’s not vital to the stability of the Canadian housing market and economy when the Canadian income tax does not allow the deduction? And how come the economy didn’t stagger in 1986 when the deduction for personal interest on loans for the purchase of cars and other consumer items was terminated?

The cries of alarm of the special interest groups seem to be just another example of their self-interested attempts to influence public policy to favor financial benefits for themselves and their constituents.

Comments (20)
20 Friday, 21 September 2012 18:05
Fed up with the BS
It figures that the bastards in congress and the freak in the capital would come up with another idea to punish the citizens. I guess they have to come up with the extra funds to pay for the latest amnesty they have given away to the illegal sewage from Mexico.
19 Friday, 17 February 2012 16:22
average struggling middle class
Why does the very backbone of this country again need to pay for the extravagance of the politicians. Why don't they have a complete audit from uninterested outside accounting firms to determine where all the waste is going. I am very tired of supporting all the special interests but mine. I work very hard and struggle to make ends meet. If this goes away then I will have to eliminate something else - perhaps my high cost medical care that does not cover anything.
18 Monday, 30 January 2012 19:41
This is totally absurd. I come from a middle-income family - if this deduction were eliminated, I'd lose my hat...and I'd walk away from my mortage - probably file bankruptcy when I never had ANY ISSUE paying ANY BILL - EVER. Even have great credit. If you can give me a plan that doesn't increase my mortgage when you eliminate this deduction altogether, maybe I'll buy it...but with all the problems we're having with the economy, the gov't, etc., I'm not convinced that we'll even get this right...and folks like myself will end up holding a bad bag.
17 Monday, 08 August 2011 23:26
Clown Crusher
"It's about time we remove this deduction for people like me if it will help reduce the deficit."

You sir, are an idiot. Why don't you just mail in your refund to the treasury if you don't want to keep it.

If you didn't understand WHY you were allowed to write it off, then you were too stupid to own a home.

Get lost clown.
16 Tuesday, 02 August 2011 18:00
This tax write off is the life-blood of the middle and lower class home owners of this country, also the charitable deductions. The backlash from this will rattle the halls of DC. The president and members of both houses are so far removed from everyday AMERICANS they just do not understand the damage done by their actions. The country cannot afford to remove these deductions!
15 Monday, 25 July 2011 06:43
Realtor in DC
Whether you think the MID is good or Bad, more than likely there should just be a limit to it. Taking an additional hit to the housing market right now would be catastrophic. In addition to phasing in any changes, I think that capping the deduction rather than eliminating it entirely would help to stem the losses in value in less expensive markets. If you capped the deduction say at $25K wouldn't that keep the middle class from feeling most of it and force the wealthy to pay for the right to live in something palatial, or just not mortgage it to the hilt? I would think so.

It is all relative to the area we live in and should be treated as such. It is impossible to compare the DC market to markets in WV. Shouldn't we seek a solution that at least keep markets flat? Do we really want to collapse the house market further?

For all those who don't seem to care and just want it eliminated, I say it is irresponsible to everyone and carelessness along with politics has lead us to where we are today. It is time to be thoughtful and selfless. Look at the big picture and realize that there are people wealthier and poorer than you and we should not seek to hurt any of them any more than we would ourselves. These are tough decisions and smarter people than I have the answers. I pray they know how important the job is they are doing and that they in fact hold the fate of potentially much of the world in their hands.

To get it wrong is no longer acceptable. We must start doing things that make sense and constantly monitor the outcome to see if it is working. If not, we must change it. I don’t contribute to my PAC as I feel that it is one of the greater problems with our government. I will not fund it. I call, as you should, your representatives and let them know how i feel. Be short and to the point. Acknowledge the situation we are in and don’t point fingers. We need a solution form our leaders, not more finger pointing or political posturing.

Lastly, say a prayer. This may be beyond the ability of human kind…or at least human nature!
14 Friday, 22 July 2011 13:30
David Smith
This guy obviously doesn't understand the tax code. The landlord can only deduct real estate taxes and interest on rental property against rental income - NOT against his personal income. Most people today are renting out houses at a loss.

For example, I rent two homes at a loss. I have to pay real estate taxes for both. Deducting the mortgage interest against the "rental income" results in a negative amount (a loss). That loss is NOT deductible against my personal income. As a result, when you look at what I pay in federal taxes and property taxes, I pay much more than my share!!!!!!!!!!!!!!

Actually, I believe the government should allow me to deduct this rental loss against my personal income. Do that and you will FINALLY see the housing market start to recover.

This editor actually thinks it is wise to eliminate the mortgage deduction but makes no mention of the money we GIVE to other countries that we borrow from China. Or, the many, many other government expenditures that are absurd.

Note to editor - do at least a LITTLE research before publishing a poorly informed article like this!
13 Friday, 22 July 2011 08:52
Home Owner
if we remove this deduction. And as someone who can't sell my house in this awful market without taking a hit, I WISH I was one of those "poor" renters who can't deduct rent. Don't try to simplify the issue with U.S. versus Canada and home owners versus renters as if the only factors to consider are deductions or not. There is so much more to this. It's amazing how the very poor don't pay taxes, the very rich and corporations loop hole their way out of taxes, but the middle class are always looked at for revenue in this country.
12 Thursday, 21 July 2011 17:19
For those who received this benefit for 30 years, your taxes should be raised by the equivalent tax!
11 Thursday, 21 July 2011 17:16
This sucks
If a family or individual have already received 100% of the MID benefit (since inception of their home purchase (if their home closed in 1980), then of course you are for removing the tax benefit. You already received it.

This is terrible policy. If inacted on 100% of current beneficiaries. Home prices will decline another 40%! Crash and burn! New buyers will have to reduce their monthly operating income by at least 500-1,000 a month, just to pay for higher taxes.

It is just wrong to take away this deduction on middle class (making
10 Thursday, 21 July 2011 12:16
Not the time
My family income is in the low six figures in a very expensive area. If the home mortgage interest deduction goes away, my personal finances will be in trouble (i.e. cash flow will go from black to red). While I understand (or even agree with) the argument that it should never have been implemented, during a tough economy and housing market is the dumbest time to eliminate it. My discretionary spending will evaporate, and then government will be misappropriating more of my money.

Regarding tenants, yes they don't get the break, but this point is absurd:
"Insult is added to injury by the fact that part of the tenant’s rent is indirectly attributable to the landlord's deductible real estate taxes and mortgage interest."

All landlords' expenses related to a property are deductible and the tenant's rent must be claimed as income. It is a business, with profits = revenue minus expenses. As a landlord, I can assure you that the government does not need to do more to discourage people to be landlords. My tenants get good housing at a very reasonable price.

If the interest deduction goes away, it needs to be phased out over many years.
9 Thursday, 21 July 2011 12:06
"It's about time we remove this deduction for people like me if it will help reduce the deficit."

How about end the lifetime pensions in the MILLION$$ who were actually at fault instead of going after the regular middle-class working man?

Furthermore, what's stopping you from voluntarily paying extra taxes to curb the deficit?

How much do you currently voluntarily pay in excess taxes to "curb the deficit"?

How much?

As in, provide an actual number...
8 Wednesday, 20 July 2011 19:25
middle class
This is basically telling me goodbye to my tax refund and I am paying another $4000 in taxes. We are a middle income family and now I may not be able to afford a house that I bought 11 years ago before there was a problem. Also, I won't be spending any money on improvements to the house or purchasing anything else for that matter now that I will be paying approximately 7000 more in taxes. Why can't they curtail their own benefit package so they don't make their salaries for the rest of their lives!!! I really wish I owned a 30 billion dollar house so they would decide it was too big not to continue. Again why do we have to pay for their mistakes!
7 Wednesday, 20 July 2011 18:01
Let the average working Joe pick up the tab for poor government decisions and management of taxpayer dollars. Continue to bail out failed banks, business's, those who take and don't contribute, and border jumpers. Don't forget to grab old folks SSI and Medicare also to continue to support the parasites of America.
Get ready to watch your house price plummet by 15% - 30% if the mortgage interest deduction (MID) is eliminated or severely curtailed. I think the deduction never should have been enacted in the first place. BUT... It's been around for 70 years and lots of people have bought houses at MID enhanced prices. Unless it's phased out over a LONG period (e.g., 30 years) it will just crush house prices in high-cost areas. So, if you're sitting in your paid-off $900K Bay Area house thinking, "what do I care if the MID is eliminated?". I'll tell you why you should care: your 900K house is about to become a 600K house because your buyer that used to be able to afford a 900K house can now only afford a 600K house, after the MID is gone.
5 Wednesday, 20 July 2011 17:37
Repeal the Mortgage Deduction!
Look at this eye-opening chart on this NyTimes blog:
4 Wednesday, 20 July 2011 16:19
Um you do realize your house is your domain and your car is a luxury... right.
About 1986... Cars dont cost nearly as much as houses so the 300 dollars in intrest a year will not hurt a middle income earner as much as say 8000 in intrest on their house...
I'm sure with your silver spoon in hand your have no problem expecting everyone else to pay for something your mommy and daddy bought you
3 Wednesday, 20 July 2011 14:49
If I make over $300,000 a year and own my home outright, my taxes will go down under the Gang of Six Plan, as the highest tax bracket drops from 39.6% to 28%. If I make $80,000 a year in a high cost of living area like NJ or NY or DC and my house is mortgaged and underwater, my taxes will increase? And you feel like this is a good idea? And you also feel like this deduction, which millions of people relied upon in purchasing their homes, can be phased out with minimal impact? Good luck with that.
2 Wednesday, 20 July 2011 14:38
Bought my first house in 1981 and did not understand why I was able to write off the interest on the loan. Good for me but not for the other tax payers that have to make up the difference. Seems like this just pushes up the sale price of homes or entices people to buy bigger than what they need. Again, good for me as a property owner but not good for the young couple trying to buy their first home. It's about time we remove this deduction for people like me if it will help reduce the deficit.
1 Wednesday, 20 July 2011 14:02
Since we bailed out the billionaires, it is time to bailout the renters, make rent deductible.

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