NWR: Financial chaos

Whatever savings the borrower sees are illusory. The interest deduction makes housing seem more affordable, but really housing values rise because housing is more affordable to everyone. That is, you have to borrow more to buy the house, and even if the deduction totally offset that additional cost so that there really were no difference to you the borrower (in which case, why have the deduction at all?), the bank makes out quite well because the size of the mortgage is bigger.
 
originally posted by SFJoe:

Overinvestment in housing. Subsidy from the poor to the rich. Stuff like that.
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A better straw man for that argument IMO is the lowering of property tax rates that began in '76 with Jarvis-Gann. One can find an inverse correlation between real estate tax levels and housing prices, so if you want a housing bubble, just lower them taxes. Since many states used property tax income to fund the schools (and some even redistributed it to prevent inequities in funding -- what a concept!) you get the double whammy of driving up housing costs while gutting your educational system. Win win, baby!

Mark
 
A mortgage interest deduction is only available to people who pay income taxes. This does not benefit the poor, who pay payroll taxes and so on if they work, but they cannot deduct there. They probably do not get a mortgage in any normal market environment anyway. So they contribute payroll taxes and so on to the government, but don't get a rent subsidy or what have you.

People a little farther up the economic ladder pay income taxes and can get small mortgages, that are deductible. Plutocrats like Jeff can get big mortgages on big houses and write off large sums against taxes. Thus, it may take a floor full of secretaries to match the mortgage interest deduction of a handful of managing directors. This looks to me a bit like an arrangement that brings much larger benefits to the rich than to those less well off.

And as I mentioned, this will be changing soon in response to my objections.
 
originally posted by SFJoe:

And as I mentioned, this will be changing soon in response to my objections.
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Thanks, I was hoping you'd take care of that.

The payroll versus income tax is something that never comes up. Makes too many people uncomfortable and talking about income taxes can fool working class folks into thinking it helps them.

Anyway, I'm all for a repeal of the mortgage interest deduction for the reasons both Joe and Zachary have spelled out but also because I think that owning, rather than renting, adds unnecessary friction to the movement of labor. But the mortgage interest deduction puts money back in my pocket that I reinvest in the wine business to help them through tough times like these.
 
originally posted by VLM:
I think that owning, rather than renting, adds unnecessary friction to the movement of labor. But the mortgage interest deduction puts money back in my pocket that I reinvest in the wine business to help them through tough times like these.
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What you call "friction" some might call "glue." So you think society will be better if we all just rent week-to-week and move whenever someone offers us $50 a week more? Who is going to stick around and argue against sprawling development or care if a school is decent? Everyone now living within 100 miles of a Great Lake would now be living in Atlanta and Phoenix, each of which would now take 14 hours to traverse from end-to-end. I mean what if we were all just free to pack up and move to Montreal if, say, some illiterate nutjob was elected instead of us having a stake in any particular election.

Oh, ok, you've convinced me, I'm for eliminating the deduction.
 
One argument against people owning their house is the crimp that it puts on portfolio diversification. Some people are heavily invested in a career with a local employer who plays a large role in the community; when things go bad for their industry (through no fault of their own) they lose their job and the value of their human capital (some specific to the industry) also takes a hit. Throw in that their largest portfolio asset is usually their home and they suffer there too.

Real estate ownership is not a bad investment (well, except for some places in the last few years), but most people would be better off holding a diversified portfolio of housing around the country than such a large investment in their local community.

Roosevelt pushed the line that homeownership was to be strongly encouraged as have all successive administrations. Like university education, it has probably been pushed too far.
 
originally posted by Cole Kendall:
One argument against people owning their house is the crimp that it puts on portfolio diversification. Some people are heavily invested in a career with a local employer who plays a large role in the community; when things go bad for their industry (through no fault of their own) they lose their job and the value of their human capital (some specific to the industry) also takes a hit. Throw in that their largest portfolio asset is usually their home and they suffer there too.

Real estate ownership is not a bad investment (well, except for some places in the last few years), but most people would be better off holding a diversified portfolio of housing around the country than such a large investment in their local community.

Roosevelt pushed the line that homeownership was to be strongly encouraged as have all successive administrations. Like university education, it has probably been pushed too far.
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I agree with Cole, Bwood is a commie.
 
originally posted by SFJoe:
Mortgage interest deduction...
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This post is only semi-digestible.

The question about why renters don't get a subsidy is interesting. I think it has something to do with the fact that a rental transaction and a house-purchase transaction are fundamentally different things even though they both address the active agent's need for shelter. But I have to think about this part some more.

The rest of the post, concerning ratios of secretaries to managers, is less clear to me. There are always people who make more and people who make less. X% of the one is more than X% of the other. Also, rewards go to those who risk, and not to not, generally. The subsidy is the reward for using money to buy a house instead of other things. Muddy.
 
originally posted by Jeff Grossman:
originally posted by SFJoe:
Mortgage interest deduction...
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This post is only semi-digestible.

The question about why renters don't get a subsidy is interesting. I think it has something to do with the fact that a rental transaction and a house-purchase transaction are fundamentally different things even though they both address the active agent's need for shelter. But I have to think about this part some more.

The rest of the post, concerning ratios of secretaries to managers, is less clear to me. There are always people who make more and people who make less. X% of the one is more than X% of the other. Also, rewards go to those who risk, and not to not, generally. The subsidy is the reward for using money to buy a house instead of other things. Muddy.
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Along the lines of what Joe has said I have read a few articles which seem to make a valid point that renters, poor or wealthy, are in a sense "taxed" because they may *choose* to rent rather than own (obviously, choosing is done more along the wealthier side of the spectrum). Owners get a tax break, renters do not, hence an uneven playing field. The system pushes people towards ownership. A renter can stay for 30 years or be a pillar of his/her community, ownership does not monopolize these positive community-oriented qualities. Heck, owners may not even live in the community.

So, yup, to me the poor, because they have no choice, have their taxes raised because they do not qualify for the deductions. On top of the whole income tax/payroll tax issue. And the middle and upper class renters are getting spanked too, just not as hard. And if there be risk in ownership (too many eggs in one basket, illiquidity, etc.) people are tempted to own anyway for the tax deduction. That's why my accountant kept telling me years ago to buy (i.e., a place I couldn't afford then or afford precariously but today would have gotten to keep as my American birthright, damn I'm stupid).

I agree, away with the mortgage deduction.

I bought a bottle of 2007 Schloss Vollrads QbA today. A decent German wine in Charlotte!
 
originally posted by Marc Hanes:
So, yup, to me the poor, because they have no choice, have their taxes raised because they do not qualify for the deductions.
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Wow. If that's not funny accounting, I don't know what is.

Sorry. Just because you don't qualify for a tax reduction doesn't mean that your taxes are raised. It means you don't get a tax break. Your logic's similar to those that complain about government programs being cut when in fact it's only the spending increase that's being cut.
 
originally posted by Brad Kane:
originally posted by Marc Hanes:
So, yup, to me the poor, because they have no choice, have their taxes raised because they do not qualify for the deductions.
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Wow. If that's not funny accounting, I don't know what is.

Sorry. Just because you don't qualify for a tax reduction doesn't mean that your taxes are raised. It means you don't get a tax break. Your logic's similar to those that complain about government programs being cut when in fact it's only the spending increase that's being cut.
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Brad, actually, although hastily typed, I meant something along the lines of Joe's later comment. The statement is not to be taken *literally* as if actual tax codes are involved. But the issue of "qualification" is tricky for, perhaps, it is set up in a way that those who qualify are, err, the ones writing the code. So, as a result, the situation is "regressive" because of what we might call the "availability of opportunity." To divide people between those who qualify for a tax break and those who do not as per the extant tax code and leave it at that is unfortunate, for it does not dig deeper into the situation and take greater pains to separate symptoms from causes, etc.

Who sets the bar for qualifying for these tax "reductions"? Bring him to me and I'll be happy to show him his beating heart.
 
As part of his slate of conservative tax cuts, Sarkozy in France proposed a mortgage-interest tax deduction, but the Constitutional Council, the highest court in France, ruled it unconstitutional on the grounds that it would give property owners an unfair tax advantage.
 
originally posted by Zachary Ross:
As part of his slate of conservative tax cuts, Sarkozy in France proposed a mortgage-interest tax deduction, but the Constitutional Council, the highest court in France, ruled it unconstitutional on the grounds that it would give property owners an unfair tax advantage.
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Of course we need the socialists to tell us what to do.
 
originally posted by David M. Bueker:
originally posted by Zachary Ross:
As part of his slate of conservative tax cuts, Sarkozy in France proposed a mortgage-interest tax deduction, but the Constitutional Council, the highest court in France, ruled it unconstitutional on the grounds that it would give property owners an unfair tax advantage.
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Of course we need the socialists to tell us what to do.
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Um, I'm pretty sure we're all socialists now.

IMO, have been for a good long while, maybe always.
 
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