Home Ownership

Home Ownership

Lost in this week’s dysfunctional fight in Washington among Republicans and Democrats are the conversation on the House and Ways  Committee that is chaired by Republicans.  During these meetings which Democrats have been barred from attending, are focusing on cutting the Mortgage Interest deductions in high tax, high income states like California.

If you recall, Simpson-Bowles plan propose a two options to reduce of eliminate the Mortgage Interest Deductions entirely!  The 2nd option would eliminate the Mortgage Interest Deduction  for Second Homes, Home Equity Mortgages and mortgages over $500,000 in value.   Would your decision to buy real estate change if the Mortgage Interest Deductions were eliminated?!

We could all wonder about Federal Governments wisdom on subsidizing Fossil Fuel exploration for Exxon and Chevron, but we need to explore potential impact of such a deduction on the housing market.

The Tax Foundation reported that in 2003 only 9% of the folks with $30,000 adjusted gross income (AGI) took advantage of the Mortgage Interest Deductions while representing more than 50% of tax filers.   In contrast, 36% of the deductions went to filers with more than $100,000 in income.  Looking at data from 1998, Glaeser and Shapiro find that over 50% of itemized income goes to the top 10% of households.   Clearly, this subsidy disproportionately benefits high income tax payers which would purchase the home regardless of deduct-ability of the interest payments.

So, who is helped by this housing subsidy really?   Even if the impact of the subsidy might be a statistical anomaly, but just like any other Federal Government program that has been in place for a long time, unplugging the Mortgage Interest Deductions might have un-intended consequences that should be considered with care.

Will you alter your plans to buy real estate if the mortgage interest deduction was eliminated?!

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