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U.S. residents can deduct the cost of mortgage interest from their taxable income. I understand the intended purpose of this to be, in part, encouragement of home-ownership so that people feel invested in their community, enhancing stability, etc. I agree there's some value to this. But it gives more
reward to people in higher tax-brackets than lower-income people, who presumably are most in need of stable housing, and might benefit the community more if they feel more secure. It also gives a bigger benefit just for buying a bigger house. But people who can afford a $1M house are not those most in need of encouragement to become stable parts of their community.
So try a two-part reform. First, set the benefit to some fixed proportion of your interest, to be subtracted directly from your tax owed: say, 20%. Second, cap it at some amount, perhaps around what would be given for a 100K house (incremented for inflation of course).
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a) the less taxes you pay, the *bigger* the incremental benefit of the mortgage deduction. Duh.
b) people who buy apartments or houses for more than $1m in NYC get to pay Mansion Tax. So don't worry, we're still soaking the rich even after they get to deduct their mortgages.
c) poor people can't afford to buy houses anyway, so why are you even worried about this? (I mean, are there properties for sale for under $100k *anywhere* in the States?) |
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//are there properties for sale for under $100k *anywhere* in the States?//
Don't get out of The City much, Doc? |
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In fact, if you don't mind a bit of a commute into town, you can buy a quite nice house in the Atlanta, Georgia area for $100K. Something like a 3 bedroom, 2 bath ranch house sitting on 1.5 acres. |
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Why should you get any tax relief on your mortgage interest at all? Tax relief simply distorts the perceived value of things. If mortgage interest is tax free, why not school or college fees? We had tax relief on small amounts of mortgage borrowing (MIRAS) in the UK but it distorted the domestic property market so much that it was abolished a few years ago. |
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Investing in a home is a form of saving and for many is the most significant savings they will ever amass in their lives. The mortgage deduction is not limitless and seems quite fair to me. |
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//Tax relief simply distorts the perceived value of things. If mortgage interest is free, why not school or college fees?// |
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Well, yes, that's precisely the point as I understand it: to encourage more people to perform some action (which functions at least partly as a public good benefitting the rest of society, not just the actors) more frequently than they would based on their own self-interested calculations. In fact Clinton expanded some tax deductions for educational fees for precisely this reason a few years back, and I think a good argument could be made for doing even more of this. |
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Of course if anyone thinks that market distortions are inherently evil, then they wouldn't want any form of tax deduction for anything. But my proposal is this: given that mortgage deductions exist, and given that their purpose is to increase the ratio of buyers to owners, wouldn't that purpose be better served by my proposal than by the current system? |
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