Sunday, January 15, 2017

The Mortgage Deduction

I’ve written before about the mortgage deduction, but now that the new Congress may actually do something about eliminating it, Realtors, their lackeys and lobbyists are having a hissy fit. One such hissy fit can be found here in a January 8, 2017 editorial in the Wall Street Journal titled “Policy Purity is Bad Politics.” The link below will take you to the editorial if you are a WSJ digital subscriber:


If you’re not a subscriber, Google around. I found the editorial available at:


It’s probably available elsewhere as well.

The following is my response. We’ll see if it makes it into the WSJ:

In response to Hugh Hewitt’s defense of the mortgage deduction in “Policy Purity Is Bad Politics,” and especially his assertion that there is a great attraction to this deduction in “Trump country,” I have to ask who, exactly, in “Trump country” is attached to this deduction? Working class people by and large rent or own homes that, if mortgaged at all, most likely don’t throw off large enough mortgage interest deductions to justify itemizing—especially at today’s low rates. No, Mr. Hewitt, those folks not only don’t benefit from this subsidy, it’s probably one of the reasons they voted for Mr. Trump in the first place.
                The middle and upper classes in this country simply must get over the idea they are owed rewards from taxpayers for buying themselves a place to live. At one time mortgage subsidies may have made sense, but that time is gone. Younger people are choosing to rent. Homes on the coasts are far too expensive for entry-level buyers. The mortgage deduction has become just one more way the working class and the poor are subsidizing the wealthy. It’s trickle up income redistribution.
                Beyond that, how much sense does the deduction make economically? The 2016 standard deduction for a couple filing jointly is $12,600. The tax rate for most filers—especially those in “Trump country”--won’t exceed 33%. For those whose mortgage puts them above the standard deduction, they get a whopping $33 back (paid for by taxpayers) for every $100 they send to their mortgagees. It’s not a great deal for most of those in “Trump country.” It’s certainly not a great deal for renters or for those who cannot afford to buy a home or for taxpayers.
                While the Tax Reform Act of 1986, for which Ronald Reagan is still praised, established a precedent for eliminating interest deductions with no period of adjustment, I agree with Mr. Hewitt that it would not be fair to pull the plug on this deduction immediately. But it would be fair to draw a line in the sand and say, for example, mortgages closed before January 1, 2018 will be deductible but those closed or refinanced after that date will not be. In 30 years we’d be rid of this deduction. Those who have the deduction will not lose it, and those who want a house enough to buy one without taxpayers subsidizing them will do so.  
                Eliminating this deduction, which benefits the few, in exchange for a higher standard deduction, which will benefit everyone, is almost certain to please those in “Trump country.”


© 2017 Larry Roth

Tuesday, January 10, 2017

Stuff

                One thing I really missed when I had a (more than) full-time job was having time to read for pleasure. Nowadays I have the time, and it’s amazing where my reading takes me.
                I picked up Eric Larrabee’s The Self-Conscious Society: The State of American Culture at Mid-Century at an estate sale. The book is a collection of essays published in 1960 when Mr. Larrabee was managing editor of American Heritage magazine. The last essay, “After Abundance, What?” mentions “The Midas Plague,” a 1954 short story by Frederik Pohl. Thanks to the library’s Interlibrary Loan program I was able to find the short story in a collection of Pohl’s work titled Midas World.
                The story is about a world that has resolved all its energy issues and produces so much stuff that people are required to consume. In this society less is truly more. The wealthy are allowed to live in small homes and do not have to consume as much as the lower classes. A young man who is caught committing the improbable crime of stealing a painting is described as a “Pretty poor kid. Forty-two-room house.” It took the police three hours to find the painting, which was hanging on a wall. The kid’s punishment was to be lowered two grades, meaning he’d have to live in a bigger house and consume more. In this society, consumption is nearly everyone’s occupation. Actual productive work is a privilege. The main character works one day a week; when he moves up a grade, he is allowed to work two days a week. The hero of the story does come up with a solution to the under-consumption problem, but I won’t spoil the story for you.
                Of course, this is science fiction written in the heady days when, in post-War America, anything seemed possible—even cars with massive tailfins.
                Recently stuff—getting it and getting rid of it—has been on my mind. As I mentioned, Dan and I consolidated 4,000 square feet worth of stuff into 1,600 square feet. Actually, we’re still in the process. As I began writing this, Dan presented me with four more boxes of stuff to take to a thrift store. It’s amazing how all the stuff we once thought we needed can quickly become a nuisance.

                About now would be a good time to take a break from this article and Google “Bargain Hunting” by Truckstop Honeymoon. Listen to it. I need to listen to it every once in a while, too.

                I still go to estate sales. These days, though, I’m pretty much limited to looking at books, which don’t take up too much room. Once I’m done with them I either sell them through Amazon.com or Half Price Books. Some of the hoarder estate sales I’ve been to have been amazing. And really, really depressing. At one sale in a very nice part of town, the large house was so crowded that there was only a path through the house. The basement was packed, and there were several storage sheds in the back yard. Another large house in an older part of town was packed so tightly that parts of the house were off limits because there was too much load on the floors. The ad for the sale mentioned there were books, and there were, indeed, thousands of them, but the owner suddenly decided he couldn’t sell any of the books. I overheard him telling someone, “I started bringing stuff into this house in 1968.” I wondered if he’d ever taken any stuff out of the house. At another house, which has since been converted to a Bed and Breakfast, the owners had taken out second mortgages to travel abroad and buy stuff, including tons of tailored clothes. The mortgages exceeded the value of the house, and the heirs were letting the house be foreclosed. Dan bought one of the tailored shirts for 50¢. It had probably cost $200 originally, not including the trip to London for measurements.
                What is it with stuff? Why are we so willing to part with the money we spend our lives earning for stuff? And by “we,” believe me, I include myself. I don’t fall into the stuff trap very often, but it happens. I found two mid-century pilsner glasses at a sale last spring. I paid $1 for the pair, and, yes, they’re “worth” a lot more, but are they really? And how do you go about finding someone to pay what they’re “worth?” I guess it’s best to admit that I, too, can fall prey to what Your Money or Your Life author Joe Dominguez called the “gazingus pin” that I suddenly realize I simply must have. I will admit that I enjoy looking at books at estate sales, and I like it when I pick up some that look interesting and find I’ve wound up with one that I can sell on Amazon.com that will pay for the day’s shopping.
                Dan has been training with one of Kansas City’s better estate sale people, and he tells me people are in line when the sale opens, and it’s a mad rush when the doors open—people grab stuff right and left, afraid they’ll miss out on a bargain.
                But consider estate sales, and I do love them enough to go to them myself. The people having the sales are usually heirs who already have a lifetime supply of their own stuff. Often they don’t want any more or they live elsewhere and moving stuff is too much of a hassle, so (if they’re wise) they hire an estate sale professional who will charge them to get rid of the stuff they don’t want. Charges will vary from a fixed percentage of the net proceeds to a fixed price plus a percentage of the proceeds. By the way, if you’re going to be in the market for an estate sale professional, find out first how they charge and if you can, find out how well they price the items. I’ve attended a lot of estate sales, and some of them price items so high they just don’t move. So I don’t go to their sales. I’ve been to a couple of sales families held after some of the higher priced professionals failed to move their stuff, and I can tell you they were not thrilled to be doing the sale they paid someone else to do. If you don’t know the estate sale professionals in the area, ask people who go to sales for their recommendations. Believe me, we’ll tell you the ones we like!
                As far as do-it-yourself estate sales go, it can work. But the odds are you’ll have a family member (or two) who is so emotional that haggling is seen as an affront to their late whatevers. Or, even worse, you’ll have a family member (or more) who is familiar with antiques and thinks shoppers will pay at least as much at an estate sale as they would in an antique shop (or shoppe). (They won’t.) In either case, the end result is the stuff doesn’t sell, and people get upset. If you’re going to go this route, I’d highly recommend a family meeting to emphasize the purpose of the sale is to get rid of stuff—not to honor grandma or to make a fortune on her stuff. Marni Jameson, in her book Downsizing the Family Home: What to Save, What to Let Go advises the average estate sale grosses less than $6,000. She also gives several options for getting rid of an estate.
                Anyway, back to my point about stuff. It costs us to buy stuff and it costs our heirs to get rid of our stuff. If they don’t pay an estate sale professional, they do it themselves, they give up their time and probably get into fights and think nobody’s doing as much as they are, and life is so unfair, and they should get more than everyone else, and someone is going to cheat them out of their inheritance, etc. Yep. I’ve been there.
                When my father died in 2005, two years after my mother died, we cleaned out their house. We thought we would soon be selling it, but as it turned out we let my brother live there another eight years, but that’s a story for another day. There were four of us. Dan, who has four siblings, says three is the limit for maintaining good relations. And that turned out to be true in our case.
                For decades my parents had told me who was to get what when they died. Their biggest concern was that my younger sister get the dining room set she liked. My parents treated me like their sole executor. After my father died it turned out that the older of my two sisters, Fang, had been named co-executor. What our parents intended, of course, was for her to be an alternate executor. Our parents had used an attorney who was a friend to draft their will. He screwed up, and I was stuck with the screw-up. Fang had no idea what our parents had told me. She had no idea she was to be co-executor. She told me our father had told her he was leaving more to her because she had children and the rest of us did not. He didn’t. Looking back, I think she believed because she had given our parents grandchildren she was entitled to a greater share. But she was stuck with an equal share, and I was stuck with her as co-executor.     
No sooner had our father died than Fang, who lived 700 miles from our parents’ house, located someone she knew who had ordered a horse trailer in Oklahoma. She offered to deliver the trailer if she could use it to haul some stuff. And haul some stuff she did. She and her husband made that trip with the trailer and at least another trip with a pickup. At the time I thought if it makes her feel good to have that much of her parents’ stuff that’s great. I didn’t need it. I wound up with my parents' 1989 Oldsmobile (which was no bargain) and, after insisting, some coins and a very few other items, most of which I wound up hauling back to Oklahoma and giving Little Sister (LS).
                My father had asked that after he died my brother, Little Darling (LD), be allowed to live in the house six months. Fang insisted she be paid her share of the value of the house immediately, which she was.
Fang somehow decided our parents had made us co-executors because they feared I would cheat the others. This, mind you, after she had a horse trailer and a couple of pickup loads of their stuff safely spirited away. I decided that Fang should contact me only by email in the future. To further compound what turned out to be a comedy of errors, our parents’ attorney friend decided he liked golf better than practicing law, and he did a walkabout. I don’t exactly know what all went on behind the scenes, but Fang eventually decided our younger sister would be executor. This turned out to be such a wise choice that, eight years later, we wound up in a mad rush to correct probate so we could close on the house. Of course, Fang was out of the picture, so she missed out on sharing the legal fees.
Anyway, back to stuff. If I had it to do over, we would have hired a professional and had an estate sale. Fang was afraid we’d be cheated. Notice a trend here? Fang’s always afraid she’s going to be cheated. And somehow she is never the one who winds up on the short end of the stick!
Had we had an estate sale, we could have cleared the house and split the proceeds. There would have been no need for a horse trailer. We could have put our parents’ car up for bid, and if I wanted to buy it, I could have. And there would have been far fewer hard feelings. I think.
When we sold our parents’ house in 2013, LS had told me there was some Tupperware and asked if I wanted some. I said yes--especially if there was one of the salad bowls because mine had a broken lid. When I got there, I saw two boxes. One was huge. The other was not. I asked if those were my boxes. LS said, “No, just that one.” (The smaller one.) I’d wound up with one salad bowl. Period. Fang and her husband had so much stuff (again) they had trouble getting it in their SUV. But this time Fang must have had some guilt pangs. She sent me another salad bowl.
Continuing a family tradition, which I’ll discuss in another post, Fang always gets her trips paid for (this one from the proceeds of the house sale she didn’t have to pay the legal fees for to get the mess she insisted on causing undone.) Fang never comes out on the short end of the stick.
But in the long run, Fang did me a favor by taking all that stuff. Even if a lot of it wound up being sold in her booth at an antiques mall. (Oh, I forgot to mention she had that, didn’t I?) As I said, most of the stuff I wound up with I gave back to LS, and, when Dan moved in last year the stuff I didn’t wind up with was not a problem.

A few years ago the guy who does my lawn started to spray some fertilizer. I asked him what he was doing. He said, “Fertilizing your lawn.” I said, “So you’re charging me to fertilize my lawn so it can grow faster and you can charge me to cut it more often?” He put the fertilizer away.
I see stuff the same way.
As I’ve mentioned before, we have a new Smart TV. Buying the new TV was just the start. In order to pull in stations, we bought a new antenna. In order to boost the WiFi, we got a WiFi enhancer. Because Samsung’s computer wouldn’t pull in some of the things we wanted, we got a Roku. I don’t miss my CRT TV, but you can see my point. Often when we buy one thing, it leads to a seemingly never-ending cycle of spending. Sometimes it’s best to really think about where a purchase will lead before taking that first step. Denis Diderot wrote about this in 1769 short story titled “Regrets for My Old Dressing Gown, or a Warning to Those Who Have More Taste Than Fortune.”
It’s still true!

And now, maybe you’re ready for another listen to Truckstop Honeymoon’s “Bargain Hunting.”

Up next a look at the mortgage deduction.


© 2017 Larry Roth