Ax may fall on tax break for mortgages

[sdduuuude]

This is an increase in the effective interest rate paid by any homeowner, which would directly put downward pressure on all residential real-estate.

Homeowners take a double-hit. They have to pay more interest going forward, AND their property values would drop.

Not only would millions of homeowners rally against this, they would be backed by the entire real-estate community, and, of course, banks.

Lower property values and higher interest rates would be a nightmare for the banks, especially those “on the edge”.

Even if you ignore the homeowner backlash, I don’t see Congress doing anything to hurt the banks.

[(former)FormerSanDiegan]

[quote=briansd1][quote=FormerSanDiegan]

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.
[/quote]

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.

[(former)FormerSanDiegan]

[quote=briansd1][quote=FormerSanDiegan]

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.
[/quote]

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.

[(former)FormerSanDiegan]

[quote=briansd1][quote=FormerSanDiegan]

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.
[/quote]

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.

[(former)FormerSanDiegan]

[quote=briansd1][quote=FormerSanDiegan]

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.
[/quote]

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.

[(former)FormerSanDiegan]

[quote=briansd1][quote=FormerSanDiegan]

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.
[/quote]

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.

[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.

As a side note while I benefit from the mortage interest deduction, I still feel that it is one of the worst regressive taxes. Mortgage interest deduction should be capped based on an area’s (state/city) medium household income.

[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.

As a side note while I benefit from the mortage interest deduction, I still feel that it is one of the worst regressive taxes. Mortgage interest deduction should be capped based on an area’s (state/city) medium household income.

[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.

As a side note while I benefit from the mortage interest deduction, I still feel that it is one of the worst regressive taxes. Mortgage interest deduction should be capped based on an area’s (state/city) medium household income.

[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.

As a side note while I benefit from the mortage interest deduction, I still feel that it is one of the worst regressive taxes. Mortgage interest deduction should be capped based on an area’s (state/city) medium household income.

[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.

As a side note while I benefit from the mortage interest deduction, I still feel that it is one of the worst regressive taxes. Mortgage interest deduction should be capped based on an area’s (state/city) medium household income.

[(former)FormerSanDiegan]

bearishgurl –

That’s another interesting observation. I think you are right that the long-term equilibrium result is the concentration of property ownership into fewer, more corporate hands, since rental owners would have an unfair tax advantage over owners who live in the property.

[(former)FormerSanDiegan]

bearishgurl –

That’s another interesting observation. I think you are right that the long-term equilibrium result is the concentration of property ownership into fewer, more corporate hands, since rental owners would have an unfair tax advantage over owners who live in the property.

[(former)FormerSanDiegan]

bearishgurl –

That’s another interesting observation. I think you are right that the long-term equilibrium result is the concentration of property ownership into fewer, more corporate hands, since rental owners would have an unfair tax advantage over owners who live in the property.

[(former)FormerSanDiegan]

bearishgurl –

That’s another interesting observation. I think you are right that the long-term equilibrium result is the concentration of property ownership into fewer, more corporate hands, since rental owners would have an unfair tax advantage over owners who live in the property.

[Author]

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