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

No comments:

Post a Comment