Well there "they" go again. This time the "they" are President Obama and the Whitehouse. Where they are going is whittling away at the deductibility of home mortgage interest payments, this time whittling with a large hatchet. (The same hatchet work is proposed on charitable contributions too, but my focus here is on real estate.) I have a few thoughts on this.
- Any start at reducing this deduction makes it open to further cuts/elimination in the future. This time the proposed tax increase is on the backs of the higher-tax-bracket payers, but an opening can be made wider once there is a crack in the door.
- With the housing economy more fragile than the rest of our already precarious overall economy, and with housing recognized as the foundation - taking away LONG-standing housing tax deductions seems insensitive at best and outright dangerous at worst.
- The language in the budget document (see p. 40 after downloading the full 192 pages at this website) is very revealing. My last blogpost was about "what's in a word". The following is the text from the OMB describing the budget and proposal to limit the mortgage and charitable contribution deductions. See if you pick out the same curious paradigm from these words:
"Reduce the Itemized Deduction Write-off for Families with Incomes over $250,000. Currently, if a middle-class family donates a dollar to its favorite charity or spends a dollar on mortgage interest, it gets a 15-cent tax deduction, but a millionaire who does the same enjoys a deduction that is more than twice as generous."
There is a perspective here that we, the people, are giving this millionaire something out of our generosity; that it somehow belongs to us to give him or her. The reality is that individuals earn money that is theirs. If someone works hard enough or smart enough or is otherwise fortunate enough to earn more, we expect that person to be more "generous" and by law we require that person pay a tax as high as 39.6% of the dollars earned. It is her dollars in her pocket we are talking about "generously giving back" by not taking. I prefer to think of this as a proposal to take more of this person's dollars as a tax rather than characterizing this as eliminating government generosity.
The mortgage deduction encourages people to do something considered positive for the whole society. Any step to eliminate this encouragement puts us closer to a dangerous precipice. (BTW- I feel the same way about the encouragement of private charitable giving.) In the metaphorical words of Roger Waters: "Hey! Teachers! Leave them kids alone!"
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