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Wednesday, May 26. 2010

Ten lessons

The always-useful Walter Russell Mead on The Top Ten Lessons of the Global Economic Meltdown.  One quote:



“Vote yourself a home!” has been our national motto for the last fifty years and today Americans are as addicted to the home mortgage deduction (and the even less justifiable deductions for second mortgages and home equity loans) as Greeks are to early retirement and government employment.  Political popularity makes the policies harder to change — but no less damaging and destructive.


Posted by The Barrister in Hot News & Misc. Short Subjects at 13:55 | Comments (7) | Trackbacks (0)

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I think people have been brainwashed into thinking the mortgate deduction is abig tax thing. Being able to deduct some interest paid on your mortgage from your gross income is not going to save you. Greeks on the other hand have no property tax on your primary home which to some extent I agree with since I believe that here in NY state at least you never really own your home because of the high property taxes. Their other taxes oppressive are which is why people are always trying to get out of them. But if you want to live off the government somebody's got to pay.
#1 maudzos on 2010-05-26 14:59 (Reply)
Maudzos:
I would modify your comment about property tax. If you have to pay ANY property tax, the property you pay the tax on is being leased to you by the government that is charging you the tax. When you stop paying the tax, that government will seize your property and that is when you'll find out who really owns it!

Jim G.
#1.1 Jim G. on 2010-05-26 18:25 (Reply)
>>>I think people have been brainwashed into thinking the mortgate deduction is abig tax thing

I think you're wrong. I live in a crappy expensive part of the country where the median home is around $400k. We live in a sub-median home and put up with a horrendous commute to be able to afford it while wife looks after son. Because the amount of money deducted annually (~$20K comes off the top of my income, that's marginal tax rate that I'm saving, or in the neighborhood of $6k/year. Yeah, you could get rid of that and two things would happen. Our modest, once yearly vacation would be gone along with the 1-2x/month eating out. Then, several months down the road, as house prices in the area plummet (not due to massive defaults, but due to sufficient defaults at the margins to further tank the market) the equity I have in my home would disappear.

No big deal to you maybe. But people forget the S&L crisis of the 80's was precipitated by eliminating the commercial real estate mortgage interest deduction. The resulting "adjustment" in prices cost us taxpayers hundreds of billions of dollars.

Conservatives shouldn't start thinking like utopian liberals and start believing that you can upset the apple cart of property rights expectations to re-engineer a better society. It doesn't work that way; typically, upsetting the apple cart doesn't optimize the apple markets; normally it only puts individual apple sellers out of business.
#1.2 Jim on 2010-05-27 00:09 (Reply)
I have always thought that there should be a cap on mortgage interest deduction. It should be restricted to primary residence and a maximum of $20k or $25k a year. Above that amount of interest, you are on your own.

If that had been the law, you wouldn't have seen the big run-up in house prices on the coasts and in the "hot" markets, but ordinary Joe and Jane could have a little help with basic shelter and initial home ownership.

It's crazy that high income people deduct six figures of interest on their overpriced multiple homes.
#2 Dan D on 2010-05-26 15:35 (Reply)
There are limits now about how much mortgage interest is deductible, depending on your income. It is far from 100%.

Also, if you got rid of second home mortgage deductions, lots fewer people would buy them. That would harm construction and housing prices....so it's all connected.
#2.1 the B on 2010-05-26 16:18 (Reply)
OK, AMT and other limitations apply.

But why should the housing industry be subsidized to the extent that it is? It distorts prices, significantly drives up housing values, tempts millions to buy up to a larger, more expensive home that eventually will need to be re-sold when the owners die or move.

Why doesn't the tax code let me deduct interest on my cars, that would be good for the auto industry. Or let me borrow and deduct the interest for purchasing fine art, that would be good for the world of the arts.

Politically it may be necessary to keep some home mortgage interest deduction during a transition period, but we'd be better off with flat tax at lower rates, and a large personal exemption to keep the effective rate lower for low-income people.
#2.1.1 Dan D on 2010-05-26 21:18 (Reply)
Or, second homes would be smaller and maybe actually used by the owners rather than rental property?
If the morgage interest is removed, then it just another case of double taxation when the bank is also taxed on its revenue-not that that (dividends) ever stopped anything.
#3 MikeinAppalachia on 2010-05-26 19:07 (Reply)

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