Yes, makes crystal clear sense. I knew I understood it... just had a (highly normal) idiot moment.

fan_from_texas;553741 wrote:Here's a rough example (using some round numbers so the math is easy):

Say you make $100k. You buy a $300k home, with a 6% mortgage amortized over 30 yrs. Each payment is (roughly) $1,800, with $300 in principal and $1,500 in interest. So in year one you pay approximately $18,000 in interest.

You get to deduct this expense from your taxable income, so you're taxed as though you made $82k rather than $100k. When combined with the property tax deduction, this can become pretty significant.

For Ernest.

This tax deduction has often been thought to be a sacred cow. One idea behind it is that it's supposed to increase home ownership. Nonetheless, other industrialized countries who don't have such a deduction (as well as the exclusion of gain from home appreciation upon the sale of your home), tend to have the same ratios of home ownership to renting as the U.S.

Also, it's been suggested that the HMID increases the cost of housing. In the example FFT provides, in a world wherein you could not deduct your mortgage interest off your taxes, you may not be as willing to buy a $300,000 home.

BoatShoes;553989 wrote:For Ernest.

This tax deduction has often been thought to be a sacred cow. One idea behind it is that it's supposed to increase home ownership. Nonetheless, other industrialized countries who don't have such a deduction (as well as the exclusion of gain from home appreciation upon the sale of your home), tend to have the same ratios of home ownership to renting as the U.S.

Also, it's been suggested that the HMID increases the cost of housing. In the example FFT provides, in a world wherein you could not deduct your mortgage interest off your taxes, you may not be as willing to buy a $300,000 home.

Yes--I think there are good reasons not to have it in the first place, as it's not necessarily a great policy. My concern would be that if you changed it retroactively, it'd kill the housing market and really affect people who just bought a home (who are still deducting lots of interest, and are perhaps underwater already). It's one thing if Congress changes a law that prospectively messes with the rules of the game, but if they do it retrospectively, it can get ugly. A home is generally the largest purchase that anyone makes in their entire life. It's also one that isn't easy to walk away from, especially if everyone is trying to walk away from it at the same time.

It'd be like Congress suddenly saying, "Just kidding about the Roth IRA/401k thing--you'll have to pay taxes when you take money out. Sorry about that." Or "You know that whole social security thing you've been paying into all these years? Yeah, we've decided to cancel the payouts now. My bad." Millions of people who made decisions reasonably relying on Congressional action would be screwed.

Because of the potentially huge impact, I can't imagine Congress touching this. I'm hard pressed to think of any other plausible issue that would upset me more than this.

Kill the housing market? It's sort of hard to kill a corpse.

fan_from_texas;554065 wrote:It's one thing if Congress changes a law that prospectively messes with the rules of the game, but if they do it retrospectively, it can get ugly. A home is generally the largest purchase that anyone makes in their entire life. It's also one that isn't easy to walk away from, especially if everyone is trying to walk away from it at the same time.

It'd be like Congress suddenly saying, "Just kidding about the Roth IRA/401k thing--you'll have to pay taxes when you take money out. Sorry about that." Or "You know that whole social security thing you've been paying into all these years? Yeah, we've decided to cancel the payouts now. My bad." Millions of people who made decisions reasonably relying on Congressional action would be screwed.

Because of the potentially huge impact, I can't imagine Congress touching this. I'm hard pressed to think of any other plausible issue that would upset me more than this.

I hope you're right...I really do. The housing market is already in trouble. If the Feds pull the mortgage interest deduction, a lot of folks will simply walk away from their homes. Yanking the mortgage deduction could - probably will - set off another round of massive foreclosures. For some people the deduction is a housing life saver.

BoatShoes;553989 wrote:Nonetheless, other industrialized countries who don't have such a deduction (as well as the exclusion of gain from home appreciation upon the sale of your home), tend to have the same ratios of home ownership to renting as the U.S.

When we become just like the "other industrialized countries", will people be happy?
When we are all forced to live in communes instead of our own homes, will people be happy?
When we finally throw away all the things that used to make us the greatest country on the planet, will people be happy?
When we eventually get to single-payer health care, will people be happy?
When we eventually come under One World Government, will people be happy?
When our standard of living is brought down to European levels, will people be happy?

When we eventually become a socialized, debt-ridden, nanny-state where everbody has equal outcomes...will everybody be happy?

BGFalcons82;554771 wrote:When we become just like the "other industrialized countries", will people be happy?
When we are all forced to live in communes instead of our own homes, will people be happy?
When we finally throw away all the things that used to make us the greatest country on the planet, will people be happy?
When we eventually get to single-payer health care, will people be happy?
When we eventually come under One World Government, will people be happy?
When our standard of living is brought down to European levels, will people be happy?

When we eventually become a socialized, debt-ridden, nanny-state where everbody has equal outcomes...will everybody be happy?

America has the HMID precisely because it doesn't want to be like other countries. It's goal is for us to have more autonomous landlords minding their own affairs than tenants in comparison to other nations. I was just making a point that, if it is the goal to provide the HMID to increase home ownership relative to tax regimes that lack such a provision, the fact is, it has failed. It may be justified for other reasons and concerns that believer and FFT have highlighted serve as strong arguments for its preservation.

Nonetheless, from a pure economic neutrality perspective, it is just one example of many wherein the government distorts the free market with a tax expenditure inconsistent with traditional income tax norms. Largely, if I'm being a bit stereotypical, because liberals have never found a program they didn't like and conservatives have never found a tax cut they didn't like. It was one of many contributing factors to the housing crisis and has contributed to the McMansion phenomenon wherein houses keep getting inefficiently bigger despite smaller families (which, as I understand it, most economists don't really like because houses don't really do much after they're built). The unintended consequences of popular liberal spending programs are much maligned. It only makes sense to highlight the limitations of popular tax deductions as well.

As a relatively new homeowner, you can be sure that I would feel a good deal of pain were this to go away...and in the end, I don't think anything happens to the HMID and if I'm thinking for my own interests first, I hope it does not. I certainly can imagine similar chicken-little scenarios that FFT foreshadows happening in real, actual, life. But, I think it's a start that this commission is putting lots of things on the table and being honest that some pain is going to have to be felt.

BoatShoes;554834 wrote:... But, I think it's a start that this commission is putting lots of things on the table and being honest that some pain is going to have to be felt.

I disagree that from a pure cash flow perspective the individual doesn't necessarily have to come to the conclusion that "pain is going to have to be felt"....unless of course we are talking about the pain of losing cash entitlements.

It is not certain by any means. There are other avenues, although they appear to be determined as "extreme" by some. The pure option of existence, however, eliminates the fact the cash flow pain is a certainty for individuals.

Con_Alma;554903 wrote:I disagree that from a pure cash flow perspective the individual doesn't necessarily have to come to the conclusion that "pain is going to have to be felt"....unless of course we are talking about the pain of losing cash entitlements.

It is not certain by any means. there are other avenues, although they apear to be determined as "extreme" by some. There pure option of existence, however, eliminates the fact the cash flow pain is a certainty for individuals.

What would you propose?

I generally like the ideas proposed by this commission. They make some sense, and streamlining the tax code is long overdue. Eliminating deductions isn't a bad idea, and I'm not entirely opposed to the basics of the proposal.

The problem, as I see it, is that it's one thing to change the rules of whether you can deduct your energy-efficient windows--if the rules change, you just don't do count on it in the future. But for something like a mortgage, that's a long-term expense that is undertaken in reliance on certain factors, including the deductability of interest. If that suddenly were to change, it'd really hurt Gen X/Y people who just purchased homes. Boomers wouldn't be hurt quite as bad because they've presumably paid off more of their mortgage, and the interest deduction isn't as big a deal for them. For us, the mortgage interest deduction was a huge factor in buying--without it, the economics change quite a bit for us. The combination of losing the deduction and losing 20+% of the value of our home in one fell swoop would be tough to swallow. I don't know what we'd do, but at that point, everything would be on the table. I'm sure we're not alone in this position among young homeowners, and I can't fathom that the govt would take an action as drastic as this when the housing market is already hurting.

"...I generally like the ideas proposed by this commission. They make some sense, and streamlining the tax code is long overdue. Eliminating deductions isn't a bad idea, and I'm not entirely opposed to the basics of the proposal. ..."

I have no problem with the idea streamlining the tax code and am very willing to embrace many facets of potential deduction limitation and marginal rate(s) negotiations. These are not the issues I have concerns about. The tax code streamlining effort should be done so with the goal of maintaining the same approximate amount of total tax revenue generated as opposed to discussing changes for the purpose of increasing the amount of total revenue.

Debate the merits of maintaining the mortgage rate deduction or eliminating it. That's fine. From a selfish perspective it doesn't impact me either way, for my mortgage was eliminated quite some time ago. My concern is with regards to the overall amount we make available from a gross, macro perspective.

The mortgage interest deduction is just one of countless examples of the federal government artificially inflating prices in our economy. If you take away the deduction and home values go down, then they are supposed to go down. Eventually they will be priced correctly and values will stabilize. Get the government out of health care and prices will come down. Get the government out of student loans and college tuition will come down. Get the government out of housing and home values will come down. It's the way a sustainable economy is supposed to work.

Eliminating the mortgage interest deduction is a horribly stupid idea (unless the overall tab burden will be less for such people). Someone can responsibly buy a house....let's say 400k in debt - upper middle class (maybe not in some areas such as CA)...At current interest rates that's about $2000 a month payment, which is mostly deductible early on and so would be some $500 in savings a month. Then let's take 2% property taxes on 400k = another $2000 savings in property tax deduction. So you're pushing $8k in a higher tax burden for those people. That's significant even for someone who is budgeting responsibly.

Not to mention, eliminating the mortgage deduction must necessarily LOWER the housing price, significantly because my payments don't go as far - in the example used here, if you lose that $500/month tax benefit then you'd have to lower your loan amount which would be $100k less here. A buyer who could have paid you $400k for your house can now only pay $300k. And what particular financial crisis are we STILL battling? Dumbest idea in the world.

Cleveland Buck;555819 wrote:The mortgage interest deduction is just one of countless examples of the federal government artificially inflating prices in our economy.

I actually think it's one of the few things they've gotten right. Buying a home is really much more a savings vehicle than an investment, when things go normally as expected (ignoring bubbles). The deduction provides an incentive for people to buy. In traditional 30-yr fixed mortgages, you pay more in interest early on (which is deductible) and then later on more in principle as presumably your earnings have increased. Back before rents and supply got a little out of whack, that deduction helped to equalize the cost of owning a home so that a person could start putting that monthly rent to owning a home and have something to show for it after 30 years.

Plus, the deduction actually has nothing to do with inflated prices. The interest rate, which affect more than just housing, has a real and direct impact on all asset prices. You introduce leverage (which isn't confined to housing) and it magnifies any distortions. Leverage, used responsibly, is not a bad thing. Loans help people to redistribute their life earnings to better match their consumption, again done responsibly this is a good thing.

Incidentally, playing with the HMID is not a new idea. I heard several years ago some rumors of capping the deduction at $400k (principal amount). I believe the current limit is something like $1.3M. I don't think this is nearly as bad of an idea, although some middle income earners in high cost areas could be unduly smacked (but they can probably adjust that some).

Also a little overdone. AMT starts to kick in if too much of your income goes to a mortgage, so you'd be losing the interest deduction anyway (and for AMT purposes it's already phased out starting at like $120k and gone by like $270k for married couples, I think). Not entirely sure how AMT works, but a number of those people have significant income that's taxed at capital gains, so I'd question how many "wealthy" people are actually deducting mortgage interest. It'd mostly be a tough burden on the little guy, and hurt home values on top of that.

The HMID is just the best example of the tax code being used for social engineering. It's really very simple, Washington devises subsidies, tax credits, and tax breaks to create an incentive for people to buy/invest/create more of what Washington wants and taxes what they want people to participate less in. At one point in American history, it was thought that owning a home was very desirous, however the cost of mortgages prevented some from owning a home. So how did they grow the housing market and make it more affordable? They subsidized it and allowed Americans to write off the mortgage interest, thus creating some demand for housing. If the HMID is eliminated, then some potential home owners will be left out of the market....and thus leading to even more class envy as the eeeevil rich have no problem buying homes and paying their mortgage.

A little off-topic here, but to reinforce the point of government's social enginnering: Obama's stimulus provides tax breaks and loans for "green" energy development. In Columbus, there is a potential battery-making plant being considered for an electric car. Uncle Sam has offered $500,000,000 in government-backed loans necessary to build the plant. No one knows if there is enough demand for battery-operated cars, like the Chevy Volt, to support such an endeavor, but Uncle Sam doesn't care, they just want to spend money to try. If this car fails, and the battery-makers go out of business, who's on the hook for paying back a half-billion dollars? You know the answer. A classic case of Washington attempting to subsidize the electric car industry, when the market has yet to decide if there is indeed a need for an electric car that might get 40 miles per charge.

The question is...do we want Washington making business decisions and intruding deeper into our lives by toying with the tax code every year?

http://politicalwire.com/archives/2010/11/12/is_this_socialism.html

Bloomberg: "Investors around the world say President Barack Obama is bad for the bottom line, even though U.S. corporations are on track for the biggest earnings growth in 22 years and the stock market is headed for its best back-to- back annual gains since 2004."

Ty Webb;557112 wrote:http://politicalwire.com/archives/2010/11/12/is_this_socialism.html

Bloomberg: "Investors around the world say President Barack Obama is bad for the bottom line, even though U.S. corporations are on track for the biggest earnings growth in 22 years and the stock market is headed for its best back-to- back annual gains since 2004."

And your point is.....

Did you even read it?

Ty Webb;557138 wrote:Did you even read it?

Ugh...it's the same thing you posted. Much like a couple Tuesday's ago, the world's leaders are telling Obama that his policies pretty much suck. I wonder if he's blaming the message he gave them as well? Listen, the world leaders are not dolts like the main stream media is. They don't buy the shit he's shoveling and they told him so.

As I've written several times already, the fact that profits are being made heralds the next piece of good news...which is hiring. I know it kills the socialists that private companies make money and the government doesn't reap all the rewards and adulation. The individual has driven our country to greatness, not the federal government. The sooner King Nothing learns this, the sooner he might be re-elected. But it's not in his genes to admit nor reward the individual, so he will pay the price for his thinking in less than 2 years.

Do you not understand what it's saying BG?

CEO's are telling him his policies are socicalist and hurting them,but yet they are for their biggest earnings growth in almost a quarter century

It was such an indepth article, sorry I missed all the details. Are you saying CEO's should be for socialism? Are you saying Obama is a socialist and look what he's done for CEO's? I'm so confused....probably from screaming at Musburger all afternoon.

If his policies are so socialist and hurting compaines,why are they having such good years

I read it...what's your point?

Ty Webb;557178 wrote:Do you not understand what it's saying BG?

CEO's are telling him his policies are socicalist and hurting them,but yet they are for their biggest earnings growth in almost a quarter century

The main reason for the improved profits is bare-bones staffing levels. Sales have come back, a little, but hiring hasn't. Many companies are hoarding cash, rather than hiring more workers, because of the uncertainty with economic policies from the Annoited One. And citing historic earnings growth off a rather deep and prolonged recession is misleading at best.

Ty Webb;557228 wrote:If his policies are so socialist and hurting compaines,why are they having such good years

..and look what those companies are doing with their cash. They are sitting on it. They won't expand or reinvest because of the policies in place and or the uncertainty of what me be coming..

We won't have real, sustained growth until we see expansion and reinvestment of capital.