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Eliminating the Home Mortgage Deduction

by Guest on Feb 20, 2012 Real Estate 1380 Views

From day one of his presidency, if not before, Obama has made no secret about reducing or limiting the home mortgage interest deduction in order to increase revenue. The Obama administration has engaged in unbridled deficit spending so the home mortgage interest deduction is once again in the forefront of where to increase taxes.

My first article about this was published on 11-16-09 entitled 'Home Mortgage Interest Deductions To Be Reduced' and can be viewed at:

The mortgage interest deduction is almost a sacred cow as it promotes home ownership. To avoid the unpopular back splash, Obama appointed a panel to look for ways of cutting the deficit. The panel is by far less than bipartisan since few members are conservative thinkers. However, you can be sure that if the elimination of the popular deduction comes about, the spin will be to blame some bipartisan commission’s recommendation.

In a recent small poll, five out of the eight professors/economists thought that reducing or eliminating the home mortgage deduction would be a good way to cut the deficit.

Some of the arguments in favor of elimination of the home mortgage deduction are:

• Other countries, such as Canada and England do not allow the deduction and still have achieved high homeownership rates.

• The US has gone way too far in trying to subsidize the housing sector; freeing up investment capital to make working Americans more productive would be a better use of our resources than building bigger houses.

• Why should taxpayers subsidize the purchase of multimillion dollar homes? This subsidy promoting home ownership over renting is a debatable social goal, with benefits far below the cost to all taxpayers from raising annual government deficits.

Some of the arguments in favor of not eliminating the home mortgage deduction are:

• Congress should not pull the rug out from home buyers in an already depressed housing market.

• The home interest rate deduction is so ingrained in the economy and the housing market that eliminating it would cause some serious disruptions.

• The elimination of this deduction would be extremely unpopular politically, as there are now three generations of American homeowners accustomed to this deduction.

• Any action taken to eliminate or reduce this deduction over the coming years could have a further EU eroding effect on current home value because it is the deductibility that contributes to value and elasticity.

To make this bitter pill more palatable, there has been talk of coupling it with the lowering of marginal tax rates. Although this may be an acceptable trade off at the outset, these lower marginal tax rates would be subject to change with each new administration.

First the government gets us into trouble with unbridled spending; then the government proposes new taxes to lessen the problems that they created. As we move forward in this period of hope and change, one of the changes looks as if working Americans will have much less disposable income.

The midterm elections were just a few weeks ago and the administration was stung with the outcome. This would appear to be a good reason to back off from the mortgage interest rate deduction in the foreseeable future. That is a hopeful opinion but somewhere down the line, it is inevitable the Obama administration will propose a reduction and/or total elimination of the home mortgage interest deduction. It may come packaged as a phased elimination over a period of years, but nonetheless, the homeowner’s precious deduction is on the chopping block.

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