Would you exchange the top 2% cut for a limit on the mortgage interest deduction?

[AngryAmish]

Well, nothing was exchanged, but that is why everyone is up in arms. Anyway...

I think an unlimited mortgage interest deduction is beyond stupid. It encourages these giant houses. I think if you limit the deduction to $500,000 of mortgage (like the President's Debt Panel said) that will bring in some needed revenue. It will normalize housing, which is good.

Yay or nay?

[Mayflower1]

1. That would help the housing market. !

Not.

[AngryAmish]

2. It would only hurt the high end

I don't have the stats in front of me but something like 97% of dwelling would not be affected. Kill NY, San Fran, parts of Chicago, Boston.

[SoCalNative]

3. I think the mortgage interest deduction

along with all others should be eliminated.

What you pay in taxes is what you pay. Period.

[billlll]

4. too small, too complicated Good motive but has those flaws

Pls advance more good ideas. You have a good attitude.

[DemocratSinceBirth]

5. The Housing Market Is In Its Death Throes

This would kill it. Removing the mortgage tax deduction had to be one of the most stupid recommendations from the Cat food Commission...

[AngryAmish]

8. The problem with the housing market is that it suffered from a speculative bubble.

The bottom line is that people who could not afford large mortgages were given those mortgages. So it bid up the prices.

What needs to be done is housing prices must go down to clear the market of outstanding inventory. This is difficult. Efficient market theory say people will lower the price automatically to be able to sell. But housing prices are "sticky" as the economists say. People do not want to reduce the prices. Individuals think that the neighbors house sold for 400k in 2007, so I should get that price. Well, things have changed. But try explaining that to someone whose entire life has seen housing prices go up. Institutions that have properties do not want to sell them because that would reduce the price of all their assets (foreclosed houses) on the books - making the managers look bad (agency problem).

The housing market is not coming back for a long, long time. Trying to reinflate the bubble will not work. Encouraging people to be realistic will work.

[dkf]

6. Isn't it already capped at &1,000,000?

[Mimosa]

7. Let's just get rid of the middle class while we're at it. n/t

[SheilaT]

9. As long ago as the 1970's I came across articles

suggesting that the mortgage interest deduction had outlived its usefulness and should be phased out. I have long agreed.

We've been through housing bubbles and mortgage crises before, even though most people have totally forgotten. In the early 1970's, for reasons that I have simply never understood, mortgage money dried up, and even people with excellent credit, a 20% down payment, the clear means to afford the monthly payment, were simply unable to get mortgages. In the 1980's and again in the 1990's there was "creative financing", which frequently included balloon payments. We walked away from a deal in 1989 that involved a balloon payment -- I can no longer recall if it was a three or a five year one, but no matter. We decided that the conventional wisdom that my husband's typical salary increases would allow us to re-finance just was too scary, and instead we bought a house for considerably less, got a conventional fixed 30 year mortgage and all ended well.

I think the underlying problem is that most people truly are financially illiterate. No one teaches kids any of the basics of borrowing, credit cards, car loans, mortgage rates. I had the good fortune to have a seventh grade math teacher who thought we needed to know those kinds of things -- actually credit cards weren't included because this was years before Visa and Master Cards came into existence. He took a week out of the school year to give us the basics, and it's always stuck with me.

[notesdev]

10. Absolutely

The biggest unfairness in the tax system is not the rates but deductions, which can make two people who make the exact same income subject to enormous differences in actual rates.

With regards to the mortgage deduction in particular, I see no reason why there is a public interest in forcing renters to subsidize private property acquisition, especially considering that renting rather than buying into a property bubble was without a doubt the wiser financial decision. And that it applies only to mortgage interest means that this is really a subsidy to the banks - if banks are not making a profit on a loan, the home buyer is not allowed to take a deduction. Those who note that this would negatively affect the housing market are right - but it will be peanuts compared to what rising interest rates will do, and the benefits of lower housing prices far outweigh the (just and correct) negative impact on RE owners.