Ax may fall on tax break for mortgages

[briansd1]

[quote=meadandale][quote=briansd1]
BTW, I believe that doing away with “tax entitlements” is the most politically viable way of closing the deficit without increasing tax rates. You can increase revenue without increasing taxes, just closing loopholes.[/quote]

Sure, we can start with AFDC and EITC. Let’s make sure everyone share’s the tax burden.[/quote]

Since 1996 AFDC has been Temporary Assistance for Needy Families and limited to a lifetime of 5 years. TAFNF helps people who fall on hard times get back up on their feet.

EITC encourages low income folks to work and earn a salary. It was last expanded in 2001 when taxes were cut.

Tax entitlements are tax deductions for people who have good earnings already since they have the money to spend in order to get the deductions.

[DWCAP]

[quote=FormerSanDiegan]

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.[/quote]

I agree with your central premiss that it is not a 1 for 1 reduction. That people will make changes to reduce their tax burden, which will distort the amount of money coming into the government coffers.

But I also think you are missing some of the counter point subtitlies.

1) yes, consumption will decrease for current households that pay the extra costs. However, lower housing prices will make housing a smaller part of monthly outlays of new households, increasing the amount of money available for future consumption from new households. It may take a few years to make up the difference, but new households generally consume more than older ones.

2) There are many many tax breaks, and people will shift around to take advantage of other breaks. The idea that ending this will result in a 19000 loss to the average tax bill (in this sinario) isnt totally true either. (Perhaps cheritable giving would rise, and that has social and economic advantages too.)

3) Your assumption about people renting out their place and then renting another confuses me. In your example of the wealthier subset, 800k loan on a ~1million+ property with 250k income results in a monthly ‘loss’ of about 1600/month. But what is renting in that subset? Most Million dollar houses I imagine are renting in the 6-8k per month catagory in san diego. But a loan on 800k at 5.5% is only about 4500/month. So they are gonna pay say 6k in rent costs, to make 6k in rent, which they have to pay income taxes on? That extra income tax would eat up alot of the extra ‘savings’ by renting, plus add in the hassels and costs of being BOTH a renter and a LL.

4)Imagine two months were you are still a renter, but dont have a tenant. Kiss your ‘savings’ goodbye.

I am not convinced the majority of people making this kinda money are going to do what you propose. Maybe there would be a small savings there, but isnt is always bantered about that a small ‘ownership premium’ is a small price to pay?

So, in the end I think it would be a net advantage to the Federal government, and a near cost neutral one to states, as lower property taxes are meet with generally increasing sales tax income; in the long run. For people already stuck with high housing interest, they may be SOL.

[DWCAP]

[quote=FormerSanDiegan]

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.[/quote]

I agree with your central premiss that it is not a 1 for 1 reduction. That people will make changes to reduce their tax burden, which will distort the amount of money coming into the government coffers.

But I also think you are missing some of the counter point subtitlies.

1) yes, consumption will decrease for current households that pay the extra costs. However, lower housing prices will make housing a smaller part of monthly outlays of new households, increasing the amount of money available for future consumption from new households. It may take a few years to make up the difference, but new households generally consume more than older ones.

2) There are many many tax breaks, and people will shift around to take advantage of other breaks. The idea that ending this will result in a 19000 loss to the average tax bill (in this sinario) isnt totally true either. (Perhaps cheritable giving would rise, and that has social and economic advantages too.)

3) Your assumption about people renting out their place and then renting another confuses me. In your example of the wealthier subset, 800k loan on a ~1million+ property with 250k income results in a monthly ‘loss’ of about 1600/month. But what is renting in that subset? Most Million dollar houses I imagine are renting in the 6-8k per month catagory in san diego. But a loan on 800k at 5.5% is only about 4500/month. So they are gonna pay say 6k in rent costs, to make 6k in rent, which they have to pay income taxes on? That extra income tax would eat up alot of the extra ‘savings’ by renting, plus add in the hassels and costs of being BOTH a renter and a LL.

4)Imagine two months were you are still a renter, but dont have a tenant. Kiss your ‘savings’ goodbye.

I am not convinced the majority of people making this kinda money are going to do what you propose. Maybe there would be a small savings there, but isnt is always bantered about that a small ‘ownership premium’ is a small price to pay?

So, in the end I think it would be a net advantage to the Federal government, and a near cost neutral one to states, as lower property taxes are meet with generally increasing sales tax income; in the long run. For people already stuck with high housing interest, they may be SOL.

[DWCAP]

[quote=FormerSanDiegan]

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.[/quote]

I agree with your central premiss that it is not a 1 for 1 reduction. That people will make changes to reduce their tax burden, which will distort the amount of money coming into the government coffers.

But I also think you are missing some of the counter point subtitlies.

1) yes, consumption will decrease for current households that pay the extra costs. However, lower housing prices will make housing a smaller part of monthly outlays of new households, increasing the amount of money available for future consumption from new households. It may take a few years to make up the difference, but new households generally consume more than older ones.

2) There are many many tax breaks, and people will shift around to take advantage of other breaks. The idea that ending this will result in a 19000 loss to the average tax bill (in this sinario) isnt totally true either. (Perhaps cheritable giving would rise, and that has social and economic advantages too.)

3) Your assumption about people renting out their place and then renting another confuses me. In your example of the wealthier subset, 800k loan on a ~1million+ property with 250k income results in a monthly ‘loss’ of about 1600/month. But what is renting in that subset? Most Million dollar houses I imagine are renting in the 6-8k per month catagory in san diego. But a loan on 800k at 5.5% is only about 4500/month. So they are gonna pay say 6k in rent costs, to make 6k in rent, which they have to pay income taxes on? That extra income tax would eat up alot of the extra ‘savings’ by renting, plus add in the hassels and costs of being BOTH a renter and a LL.

4)Imagine two months were you are still a renter, but dont have a tenant. Kiss your ‘savings’ goodbye.

I am not convinced the majority of people making this kinda money are going to do what you propose. Maybe there would be a small savings there, but isnt is always bantered about that a small ‘ownership premium’ is a small price to pay?

So, in the end I think it would be a net advantage to the Federal government, and a near cost neutral one to states, as lower property taxes are meet with generally increasing sales tax income; in the long run. For people already stuck with high housing interest, they may be SOL.

[DWCAP]

[quote=FormerSanDiegan]

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.[/quote]

I agree with your central premiss that it is not a 1 for 1 reduction. That people will make changes to reduce their tax burden, which will distort the amount of money coming into the government coffers.

But I also think you are missing some of the counter point subtitlies.

1) yes, consumption will decrease for current households that pay the extra costs. However, lower housing prices will make housing a smaller part of monthly outlays of new households, increasing the amount of money available for future consumption from new households. It may take a few years to make up the difference, but new households generally consume more than older ones.

2) There are many many tax breaks, and people will shift around to take advantage of other breaks. The idea that ending this will result in a 19000 loss to the average tax bill (in this sinario) isnt totally true either. (Perhaps cheritable giving would rise, and that has social and economic advantages too.)

3) Your assumption about people renting out their place and then renting another confuses me. In your example of the wealthier subset, 800k loan on a ~1million+ property with 250k income results in a monthly ‘loss’ of about 1600/month. But what is renting in that subset? Most Million dollar houses I imagine are renting in the 6-8k per month catagory in san diego. But a loan on 800k at 5.5% is only about 4500/month. So they are gonna pay say 6k in rent costs, to make 6k in rent, which they have to pay income taxes on? That extra income tax would eat up alot of the extra ‘savings’ by renting, plus add in the hassels and costs of being BOTH a renter and a LL.

4)Imagine two months were you are still a renter, but dont have a tenant. Kiss your ‘savings’ goodbye.

I am not convinced the majority of people making this kinda money are going to do what you propose. Maybe there would be a small savings there, but isnt is always bantered about that a small ‘ownership premium’ is a small price to pay?

So, in the end I think it would be a net advantage to the Federal government, and a near cost neutral one to states, as lower property taxes are meet with generally increasing sales tax income; in the long run. For people already stuck with high housing interest, they may be SOL.

[DWCAP]

[quote=FormerSanDiegan]

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.[/quote]

I agree with your central premiss that it is not a 1 for 1 reduction. That people will make changes to reduce their tax burden, which will distort the amount of money coming into the government coffers.

But I also think you are missing some of the counter point subtitlies.

1) yes, consumption will decrease for current households that pay the extra costs. However, lower housing prices will make housing a smaller part of monthly outlays of new households, increasing the amount of money available for future consumption from new households. It may take a few years to make up the difference, but new households generally consume more than older ones.

2) There are many many tax breaks, and people will shift around to take advantage of other breaks. The idea that ending this will result in a 19000 loss to the average tax bill (in this sinario) isnt totally true either. (Perhaps cheritable giving would rise, and that has social and economic advantages too.)

3) Your assumption about people renting out their place and then renting another confuses me. In your example of the wealthier subset, 800k loan on a ~1million+ property with 250k income results in a monthly ‘loss’ of about 1600/month. But what is renting in that subset? Most Million dollar houses I imagine are renting in the 6-8k per month catagory in san diego. But a loan on 800k at 5.5% is only about 4500/month. So they are gonna pay say 6k in rent costs, to make 6k in rent, which they have to pay income taxes on? That extra income tax would eat up alot of the extra ‘savings’ by renting, plus add in the hassels and costs of being BOTH a renter and a LL.

4)Imagine two months were you are still a renter, but dont have a tenant. Kiss your ‘savings’ goodbye.

I am not convinced the majority of people making this kinda money are going to do what you propose. Maybe there would be a small savings there, but isnt is always bantered about that a small ‘ownership premium’ is a small price to pay?

So, in the end I think it would be a net advantage to the Federal government, and a near cost neutral one to states, as lower property taxes are meet with generally increasing sales tax income; in the long run. For people already stuck with high housing interest, they may be SOL.

[SK in CV]

Great catch on this.

[quote=XBoxBoy]Whoa! Wait a minute!!!

I’m either completely wrong or completely stunned. Here’s an article on the Wall Street Journal site that says: “Californians that claimed the mortgage interest rate deduction saved an average of almost $20,000 from their tax bill in 2008”

Then when you look at the chart it revels that the average DEDUCTION is $18,876 for California.

Now unless I’m mistaken, and been messin’ up on my taxes for years, a deduction is not the same thing as saving that amount off your tax bill. Doesn’t a writer for the Wall Street Journal know this???

Am I completely wrong??????????

Seems to me that a tax deduction for interest of $18,876 is worth at best 5 or 6k off your tax bill, and given you lose the standard deduction when itemizing (which you gotta do to take the interest) this author is waaaayyyyy off base with his claim.

XBoxBoy,

ps. for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

When I first read that, i’m thinking, wow, that can’t possibly be right. And it’s not. Crappy reporting. (Let’s give credit where it’s due. That crappy reporting was done by Conor Dougherty of the WSG Blog.) The average deduction is almost $20,000. Maximum tax savings would be about $7,600. About $635 a month for an average mortgage deduction in the highest tax bracket. ymmv.

[SK in CV]

Great catch on this.

[quote=XBoxBoy]Whoa! Wait a minute!!!

I’m either completely wrong or completely stunned. Here’s an article on the Wall Street Journal site that says: “Californians that claimed the mortgage interest rate deduction saved an average of almost $20,000 from their tax bill in 2008”

Then when you look at the chart it revels that the average DEDUCTION is $18,876 for California.

Now unless I’m mistaken, and been messin’ up on my taxes for years, a deduction is not the same thing as saving that amount off your tax bill. Doesn’t a writer for the Wall Street Journal know this???

Am I completely wrong??????????

Seems to me that a tax deduction for interest of $18,876 is worth at best 5 or 6k off your tax bill, and given you lose the standard deduction when itemizing (which you gotta do to take the interest) this author is waaaayyyyy off base with his claim.

XBoxBoy,

ps. for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

When I first read that, i’m thinking, wow, that can’t possibly be right. And it’s not. Crappy reporting. (Let’s give credit where it’s due. That crappy reporting was done by Conor Dougherty of the WSG Blog.) The average deduction is almost $20,000. Maximum tax savings would be about $7,600. About $635 a month for an average mortgage deduction in the highest tax bracket. ymmv.

[SK in CV]

Great catch on this.

[quote=XBoxBoy]Whoa! Wait a minute!!!

I’m either completely wrong or completely stunned. Here’s an article on the Wall Street Journal site that says: “Californians that claimed the mortgage interest rate deduction saved an average of almost $20,000 from their tax bill in 2008”

Then when you look at the chart it revels that the average DEDUCTION is $18,876 for California.

Now unless I’m mistaken, and been messin’ up on my taxes for years, a deduction is not the same thing as saving that amount off your tax bill. Doesn’t a writer for the Wall Street Journal know this???

Am I completely wrong??????????

Seems to me that a tax deduction for interest of $18,876 is worth at best 5 or 6k off your tax bill, and given you lose the standard deduction when itemizing (which you gotta do to take the interest) this author is waaaayyyyy off base with his claim.

XBoxBoy,

ps. for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

When I first read that, i’m thinking, wow, that can’t possibly be right. And it’s not. Crappy reporting. (Let’s give credit where it’s due. That crappy reporting was done by Conor Dougherty of the WSG Blog.) The average deduction is almost $20,000. Maximum tax savings would be about $7,600. About $635 a month for an average mortgage deduction in the highest tax bracket. ymmv.

[SK in CV]

Great catch on this.

[quote=XBoxBoy]Whoa! Wait a minute!!!

I’m either completely wrong or completely stunned. Here’s an article on the Wall Street Journal site that says: “Californians that claimed the mortgage interest rate deduction saved an average of almost $20,000 from their tax bill in 2008”

Then when you look at the chart it revels that the average DEDUCTION is $18,876 for California.

Now unless I’m mistaken, and been messin’ up on my taxes for years, a deduction is not the same thing as saving that amount off your tax bill. Doesn’t a writer for the Wall Street Journal know this???

Am I completely wrong??????????

Seems to me that a tax deduction for interest of $18,876 is worth at best 5 or 6k off your tax bill, and given you lose the standard deduction when itemizing (which you gotta do to take the interest) this author is waaaayyyyy off base with his claim.

XBoxBoy,

ps. for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

When I first read that, i’m thinking, wow, that can’t possibly be right. And it’s not. Crappy reporting. (Let’s give credit where it’s due. That crappy reporting was done by Conor Dougherty of the WSG Blog.) The average deduction is almost $20,000. Maximum tax savings would be about $7,600. About $635 a month for an average mortgage deduction in the highest tax bracket. ymmv.

[SK in CV]

Great catch on this.

[quote=XBoxBoy]Whoa! Wait a minute!!!

I’m either completely wrong or completely stunned. Here’s an article on the Wall Street Journal site that says: “Californians that claimed the mortgage interest rate deduction saved an average of almost $20,000 from their tax bill in 2008”

Then when you look at the chart it revels that the average DEDUCTION is $18,876 for California.

Now unless I’m mistaken, and been messin’ up on my taxes for years, a deduction is not the same thing as saving that amount off your tax bill. Doesn’t a writer for the Wall Street Journal know this???

Am I completely wrong??????????

Seems to me that a tax deduction for interest of $18,876 is worth at best 5 or 6k off your tax bill, and given you lose the standard deduction when itemizing (which you gotta do to take the interest) this author is waaaayyyyy off base with his claim.

XBoxBoy,

ps. for someone to save 20k off their tax bill wouldn’t that have to pay over 50k a year in interest? Does anyone think the average californian who’s paying a mortgage is paying over 50k a year in motgage interest?[/quote]

When I first read that, i’m thinking, wow, that can’t possibly be right. And it’s not. Crappy reporting. (Let’s give credit where it’s due. That crappy reporting was done by Conor Dougherty of the WSG Blog.) The average deduction is almost $20,000. Maximum tax savings would be about $7,600. About $635 a month for an average mortgage deduction in the highest tax bracket. ymmv.

[MadeInTaiwan]

[quote=FormerSanDiegan][quote=MadeInTaiwan][quote=FormerSanDiegan]
…Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.[/quote]

I think government will recover the revenue. As capital allocation moves away from non-productive investment like housing and real-estate, it should move into more productive investments that will generate tax revenue. At least that is what I hope happens.

[/quote]

Interesting counterpoint. But in this case the capital allocation would shift from consumers to the Federal Government. Are you suggesting that the Federal Government makes more productive investments than private individuals ?[/quote]

What I suggest is that more productive investment allocation will lead to more sustainable growth. Goverment will collect more revenue because there will be more taxable personal income and coroporate profits. Hope that clears it up.

Government sometimes make more productive investments then private individuals. Internet which partially came out of DARPA is but one example. Basic science reasearch is another.

[MadeInTaiwan]

[quote=FormerSanDiegan][quote=MadeInTaiwan][quote=FormerSanDiegan]
…Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.[/quote]

I think government will recover the revenue. As capital allocation moves away from non-productive investment like housing and real-estate, it should move into more productive investments that will generate tax revenue. At least that is what I hope happens.

[/quote]

Interesting counterpoint. But in this case the capital allocation would shift from consumers to the Federal Government. Are you suggesting that the Federal Government makes more productive investments than private individuals ?[/quote]

What I suggest is that more productive investment allocation will lead to more sustainable growth. Goverment will collect more revenue because there will be more taxable personal income and coroporate profits. Hope that clears it up.

Government sometimes make more productive investments then private individuals. Internet which partially came out of DARPA is but one example. Basic science reasearch is another.

[MadeInTaiwan]

[quote=FormerSanDiegan][quote=MadeInTaiwan][quote=FormerSanDiegan]
…Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.[/quote]

I think government will recover the revenue. As capital allocation moves away from non-productive investment like housing and real-estate, it should move into more productive investments that will generate tax revenue. At least that is what I hope happens.

[/quote]

Interesting counterpoint. But in this case the capital allocation would shift from consumers to the Federal Government. Are you suggesting that the Federal Government makes more productive investments than private individuals ?[/quote]

What I suggest is that more productive investment allocation will lead to more sustainable growth. Goverment will collect more revenue because there will be more taxable personal income and coroporate profits. Hope that clears it up.

Government sometimes make more productive investments then private individuals. Internet which partially came out of DARPA is but one example. Basic science reasearch is another.

[MadeInTaiwan]

[quote=FormerSanDiegan][quote=MadeInTaiwan][quote=FormerSanDiegan]
…Regardless of the mechanism, it is naive to believe that the Government will recover the amount of dollars they anticipate by enacting this change. People will react and adapt to the changes in a way that reduces the overall take of the government.

I don’t disagree that in the long run the removal of this subsidy would make the economy more efficient, it’s just that the reaosn for doing so (to generate more revenue for the Government) may not come to pass.[/quote]

I think government will recover the revenue. As capital allocation moves away from non-productive investment like housing and real-estate, it should move into more productive investments that will generate tax revenue. At least that is what I hope happens.

[/quote]

Interesting counterpoint. But in this case the capital allocation would shift from consumers to the Federal Government. Are you suggesting that the Federal Government makes more productive investments than private individuals ?[/quote]

What I suggest is that more productive investment allocation will lead to more sustainable growth. Goverment will collect more revenue because there will be more taxable personal income and coroporate profits. Hope that clears it up.

Government sometimes make more productive investments then private individuals. Internet which partially came out of DARPA is but one example. Basic science reasearch is another.

[Author]

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