David Cay Johnston has published Can You Hear Opportunity Knocking?, 120 Tax Notes 683 (Aug. 18, 2008):
Right now the subprime mortgage mess has created an opportunity to improve our tax system and the economic lives of virtually all Americans, while also improving the social quality of our lives. An issue that economists and affordable housing advocates bring up all the time to no avail could actually gain traction because of the mortgage mess. …
A major reason housing costs so much is that Uncle Sam has effectively put his thumb on the scale on the side of the existing owners. Making mortgage interest tax deductible inflates the price of housing as people chase the subsidy. The mortgage interest deduction, representatives of the National Association of Realtors once told me, explains a third of the price of homes that cost more than $250,000.
Together the mortgage interest deduction and the property tax deduction artificially inflate the value of residential real estate, which forces people to borrow excess amounts of money, leaving them with less after-tax income to save or consume. …
The real opportunity is to get rid of the income tax deductions for mortgage interest and property taxes. Kill them outright or, to make it more palatable, phase them out. We could not only reap immediate and lasting financial gains and slower-to-realize but long-lasting social gains, we could also move toward simplifying our income tax system.
6 responses to “Johnston: Real Estate Meltdown Presents Opportunity to Repeal Mortgage Interest and Property Tax Deductions”
Opportunity? More like political suicide. All economists know that in the long run the economy will benefit from eliminating these and other deductions for personal expenses. But politicians operate in the short run, where the transition costs dominate.
Remember what followed the 1986 Tax Reform? The one that essentially eliminated rental property as a tax shelter? That’s right, we got the S&L bailout, which cost the government many billions and cost the economy more than that. This despite the obvious economic benefits of lower tax rates and a broader tax base. The transition costs can kill, especially politicians. And they know it.
Many clever tax schemes that are claimed to be free of disincentives share a common feature: They effectively confiscate value that was accumulated in the past, applying an extra tax to past decisions. This proposal has that ex post facto spirit, as to most major tax reforms.
Nobody running for re-election will advocate kicking the real estate market when it’s down. The best time to kick the real estate market would have been in 2000 or so when the bubble started. But politicians can’t kick the real estate market when it’s up either. The costs to taxpayers are too focused and visible, while the benefits to people dependent on government spending are diffuse.
I know I bought my house took out my mortgage loan just so I could pay interest and deduct 20-30% of that amount. And every year when my property taxes get raised I cheer “Hooray!” as for every extra dollar I pay for which I will be able to deduct less than .30!
I am sure dozens of people choose to live in DC, rather than VA or MD, because of the higher income tax rates the District imposes so they can deduct those higher taxes on their schedule A. A lot of those people with huge mortgage debt likely have huge wage incomes to service their mortgage debt and the AMT effectively kills housing tax incentives for these people.
Is it me, or does it seem that Tax Notes trending more “mainstream reader” than tax professional magazine by the addition of Mr. Johnson? Although I think Mr. Johnson’s article might be of interest to someone reading the Times or the Journal, I question whether it belongs in Tax Notes? Is Tax Notes the place for unnamed 3rd party sources (“The mortgage interest deduction, representatives of the National Association of Realtors once told me, explains a third of the price of homes that cost more than $250,000”) or for citations to authority?
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
JOHNSTON HAS A MODEST PROPOSAL FOR HOUSING
David Cay Johnston, in a Tax Analysts article reproduced at the TaxProf Blog, notes the elephant in the room in…
I read the post, “Real Estate Meltdown Presents Opportunity to Repeal Mortgage Interest and Property Tax Deductions”…. Thank you for sharing such a informative information….