Wednesday, November 17, 2010

The Mortgage Deduction

Half million dollar house in Salinas, Californ...Image via Wikipedia
Not too long ago I posted about how the government since the days of FDR has been artificially inducing demand for real estate. Over the years owning a how has gone from being a privilege to the point it is now an entitlement.

Now from the Inside Real Estate News out of Denver comes an article that promotes keeping another one of the long standing government enhancements to the real estate market: the mortgage deduction on taxes.

Anyone who carries a mortgage on their home may deduct the interest from their taxes and so could have a tax deduction up to $2500.00. One of the reasons that the justifications for keeping the mortgage deduction is that it will increase foreclosures. Now if a $2500 tax deduction is the only thing keeping people out of foreclosure, I would have to say that those people could not afford the home in the first place and should not count on a government enhancement to keep them in their homes.

In fact, as I mention in my previous post, more than 50% of the people buying homes could not buy them without some type of government enhancement and that number probably went substantially up in the last few years before the bubble burst.

I could go on forever about the social-economic impacts that the enhancements have created in our society. After all, when FDR started these programs only 2% of homeowners had a mortgage and today it hovers somewhere around the 65 to 75% range.

What you should not expect is any changes. The Reality lobby is one of the more powerful lobbying groups in many state legislatures and probably in DC too. They have too much to loose if the government stopped inducing demand for real estate.


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2 comments:

rmwarnick said...

If only the "Reality lobby" had any power at all, America would be a much better place. Most of the time the media and politicians are mired in fantasy, for example claiming we can reduce deficits by enacting more tax cuts for the rich. But I digress.

The mortgage interest deduction is safe because it benefits the rich more than the middle class.

Matt Miller said...

I fear Mr. Warnick has the right of it. Its only beneficial if you itemize deducations, which means the total value of all your deductions has to exceed the 'Standard Deduction'. Which, for most people, it doesn't.

Personally, I'm inclined to favor the elimination of the mortgage tax deduction--it's a market distortion.