The interest deduction on a 800K loan is something like 48K per year (at 6%). For someone making 250K per year, that amounts to a deduciton worth somewhere in the neighborhood of 19K.
I personally believe that 19K per year increase in costs is relevant to people who make ~ 250-300K. This will reduce the amount households in the 200-400K income can afford to pay for housing and thus will significantly impact the price of housing in the categories that these people buy.
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Let’s assume for a moment that what you said is true.
The Federal government collects $19k more in taxes.
For property taxes, $19k at 1.1% equates to a property value of $1.7 million. How much would value your example house lose in value?
The federal and state governments would increase revenue more than local government would lose in property taxes.[/quote]
You missed my main point, which is that all the owners will NOT pay 19K more in taxes to the federal government. People will make adjustments to avoid it. New owners will pay less since it will put downward pressure on prices.
Intelligent owners would convert it to a rental and rent another property. (or other similar tactics).
The property values would surely be less without the deduction. So, the Feds do not get the full 19K and CA takes less in property tax.
Exactly where the net result ends up, my guess is fewer proceeds to the Government.
And what about those who go ahead and pony up the additional 19K ? That’s 19K less per mortgage holder going into the economy. The direct impact might be ~ $1900 of sales tax revenue lost.
Indirect impacts are reduciton of GDP and job loss.
The law of unintended consequences applies here.
It’e never as simple as “hey here’s a 20K tax loophole, let’s close it and get $20K in additional revenue”. It never works out that way.
