"It is difficult to think of another social policy that more successfully multiplies America’s inequality in such a sweeping fashion."
Tax deduction for employer-insured healthcare?
How Homeownership Became the Engine of American Inequality
41–50 of 222 posts
Re: How Homeownership Became the Engine of American Inequality
#42I'd be willing to bet that if we eliminated the home mortgage interest deduction completely it would barely move the needle of what homes people choose to buy or the number of renters vs. owners. I would love to see the numbers, though.
Its like municipal taxes. People don't get about the cost of the house itself. They only care about the monthly payment (or well, the total cost of ownership, since the deduction only directly affect you yearly).
This is kind of like municipal taxes. Take the city of Cambridge in Mass, which has an absurdly low tax rate. Compare it with some of the cities near by (eg Somerville). A similar property in a similar location will bring you down roughly the same amount per month. But in Cambridge, the value of the property itself is way higher, mainly because less goes to the city and more goes to the bank (and your equity).
People factor in the deduction when they check what they can afford. If you save 12k a year in taxes, you can pay 1000 bucks a month more, which translates in a significantly more expensive property. If the deduction goes away, property value will adjust accordingly (blips down at first, maybe go up a little slower for a bit until things even out considering inflation and stuff).
People who currently have a property and cut it a little close might be in trouble if they are not grandfathered, and people selling in the short term might be a little sad.
Re: How Homeownership Became the Engine of American Inequality
#43[deleted]
Re: How Homeownership Became the Engine of American Inequality
#44I don't know of anyone who bases a home purchase decision on the mortgage interest deduction. Seriously location, school district, cost of home, time to commute, yard size, cost of HOA are all more important to everyone I know. In fact it has never come up in conversations about home purchases with my peer group.
The MID certainly does play a factor in determining how much home to buy.
Re: How Homeownership Became the Engine of American Inequality
#45So this article advocates for the removal of the mortgage interest tax deduction, because subsidizing home ownership leads to a larger economic divide between owners and renters. As a renter, I appreciate the intent, and I also appreciate any measure to simplify the tax code. That said, I also see compelling arguments in the deduction's favor. The sad truth is that most Americans are terrible at saving and in very po…
Even if you have debt, you should be taking full advantage of your employer 401k match if one is available to you. In almost every case you will come out ahead even if you withdraw the money early. So many of my coworkers do not contribute to their 401K at all, which is literally just leaving free money on the table.
Are there employers that still match? I'm only half joking.
Re: How Homeownership Became the Engine of American Inequality
#46It's a very complicated effect to model. Some random thoughts: Increasing home prices also means increasing property taxes and increasing insurance costs. Larger homes mean more expense to heat, cool, furnish, maintain, etc. Some of the tax savings can contribute to a larger mortgage and thereby drive higher home prices, but there are quite a few offsetting expenses.
Home equity is a contributor to the wealth effect. The wealth effect is a driver for consumer spending. Consumer spending is one of the more potent economic forces.
The mortgage deduction makes home ownership more affordable, but does not mean anyone can buy anywhere. Most people who rent can identify some other location in the US where they could afford to buy. They'd need a job that produces a sufficient income, and they'd need a down payment. But they need those with or without MID.
If we simply eliminated the MID, we'd see a period of volatility in real estate prices that would eventually settle out into a new equilibrium. But would that equilibrium be better overall for the economy? Would more people be able to own?
Re: How Homeownership Became the Engine of American Inequality
#47So this article advocates for the removal of the mortgage interest tax deduction, because subsidizing home ownership leads to a larger economic divide between owners and renters. As a renter, I appreciate the intent, and I also appreciate any measure to simplify the tax code. That said, I also see compelling arguments in the deduction's favor. The sad truth is that most Americans are terrible at saving and in very po…
It used to be forced saving, but now people can get second mortgages, HELOCs, reverse mortgages, etc.
Also, we could cap the home mortgage interest deduction, and it would still benefit the poor, but not the rich.
Re: How Homeownership Became the Engine of American Inequality
#48So this article advocates for the removal of the mortgage interest tax deduction, because subsidizing home ownership leads to a larger economic divide between owners and renters. As a renter, I appreciate the intent, and I also appreciate any measure to simplify the tax code. That said, I also see compelling arguments in the deduction's favor. The sad truth is that most Americans are terrible at saving and in very po…
Your goal appears to be to increase savings among the population that has difficulty doing it.
The question is whether this tax deduction actually promotes what you want. I think that the article casts a huge amount of doubt that it would.
Re: How Homeownership Became the Engine of American Inequality
#49Removing the MID would make middle-to-upper-middle-class people poorer, and so reduce inequality that way, but would it help poor people at all? The net monthly cost of housing would stay the same, just shift the proportion of your payment that goes to the government vs the bank. It's true that it's regressive, but I'm skeptical that's a huge factor.
I think it would just help landlords, who would retain the ability to deduct mortgage interest as a business expense, and who would suddenly have both an influx of people kicked back into the renter pool and cheaper properties.
The real issue is lack of supply due to zoning and planning issues, and probably the cultural preference for single-family. Also the crazy-low rates.
Edit: To be clear, I'm not saying the MID is a great thing. If it didn't currently exist, I wouldn't be in favor of introducing it, and it was a huge windfall to whomever owned property when it was introduced. But what's done is done, and it would be pretty punitive to impose a negative windfall on every homeowner in America now. Maybe grant a one-time benefit when you change the tax code and let things sort themselves out from there?
Re: How Homeownership Became the Engine of American Inequality
#50Just a thought experiment:
If home ownership was rare, almost everyone would be renting. The management company in addition to having to pay the bank loan would also have to make a profit.
To me that sounds tantamount to another tax on living. Anecdotally, owning in LA is cheaper than renting a comparably nice place. And that's irrespective of tax breaks.