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Comment by criddell | Hacker News Reader

Cory Doctorow pointed to an interest article that described the subsidies that flow to wealthy households:

http://boingboing.net/2016/07/03/low-income-us-households-ge...

I wonder if your father thinks of his mortgage interest deduction as an example of receiving help he doesn't deserve?

I am not sure why mortgage interest deduction gets such a bad rap. It allows a lot of people to be able to afford homes which they couldn't otherwise. It helps the housing market/industry and banking industry.

Apart from that a lot of other countries has it. If I had to change something I would actually add a rental deduction to help those who can't afford to buy housing instead of removing mortgage interest deduction.

I would rather the government do more to actually balance the system, than just throw a bone to too-poor homeowners.

I would rather every middle class worker simply have a much higher paycheck, so that the mortgage interest deduction could be eliminated without anyone feeling a thing.

"It allows a lot of people to be able to afford homes which they couldn't otherwise."

That may be true, but if it's having that effect for a lot of people, then surely it's also contributing to higher housing prices, which of course negates (at least in part) the supposed increase in affordability..

The mortgage interest deduction distorts the market in several ways. Making credit more available does allow people to spend more on homes, but this is then priced into the market. As you hint at, the subsidy is net neutral for homeowners, as it ultimately benefits the housing and banking industries. People who owned suburban land at the implementation of the deduction also benefited hugely, but now that prices are artificially inflated, any removal of the deduction would take money away from homeowners.

Additionally, it makes paying cash for a home unrealistic, making the housing market (more) dependent on banks and their attendant federal regulations. Over time this has had numerous negative effects on land use patterns and urban health by encouraging car-oriented sprawl and devaluing urban mixed-use neighborhoods. There's also the whole race-based redlining thing. The worst of these policies have been mitigated in the recent past, but they still pose obstacles to certain kinds of development (that are highly desirable lately) and would not have existed in the first place without government intervention in home mortgages.

The main reason for the mortgage interest deduction is that for corporations various expenses (like interest on debt) are in fact deductible from income for tax purposes, because we tax profits, not revenue.

So if there were no mortgage interest deduction for individuals that would simply be incentive for people to form a corporation they are sole shareholders for, for the specific purpose of buying the home. This would be especially true for people who are contracting or otherwise self-employed anyway and hence can have totally legitimate income for this corporation...

Now having the mortgage interest deduction but no imputed rent income due to the owner-occupancy, that part is arguably weird.

>I am not sure why mortgage interest deduction gets such a bad rap. It allows a lot of people to be able to afford homes which they couldn't otherwise. It helps the housing market/industry and banking industry.

No, it doesn't. The prospect of getting the deduction drives up demand for home purchases and therefore the price (relative to income). If we got rid of it, the same mortgage would take more money out of your income, but you would need a smaller mortgage to get any home.

(The effects don't exactly cancel, of course, but it's not some big dealbreaker like you suggest.)

In addition, it's not unreasonable to make this kind of distinction, between:

1) Free money for failing/misfortune/doing nothing (welfare policies)

2) "Free" money that you have to earn through positive work somehow. (production subsidies, government jobs, innovation awards)

Food stamps and the interest deduction are the same, in being intended as subsidies, but for the the second you at least have to be productive, earning an income, approved for a house, make all the necessary commitments, etc, and then you get some of it defrayed.

That's not to say the distinction is justified, but it shouldn't be hard to at least understand why people would put them in a different bucket.

I wouldn't be so sure that removing mortgage interest deduction would do anything to help pricing in home markets.

People owning rental properties get to deduct interest on financing used for the property. If we eliminated the mortgage interest deduction for home owners, we would be strongly favouring rent seeking behaviour - literally.

That's why you also have to tax away all capital gains associated with land (not structures) value appreciation beyond the real inflation rate. Land (outside of reclamation edge case) is not created by humans, and when land becomes private property it is necessarily depriving the public of the use of that land, thus the land owner owes the public for the right to deprive them of the land in the form of land tax, and since the land owner did not create the land, they are not entitled to any appreciation in the value of the land, that belongs to the public. The land owner is entitled to the returns of their productive investment, i.e. building structures etc. Land price then is largely set by what sort of productive return it can generate, not by the supply of credit and lending standards and supply of greater fools.

If capital gains were taxed away, that would counteract the situation where mortgage tax breaks feed directly into increased prices.

What I suggest above will be very very unattractive to many people, as real estate speculation represents one of the best 'money for nothing' speculations most people can engage in, but speculation is by definition unproductive, and it would seem to be a good idea, if unpopular to engineer a system that discourages real estate bubbles.

Let's say someone takes out a loan to buy land with a set of apartments built upon it. After subtracting loan payment costs (including interest on the loan), they're making a positive cashflow. How much of that cashflow is from the land and how much is from the apartment structure? Perhaps it's just that I'm unfamiliar with the split you're proposing, but it seems really naive to think that one can simply "tax away all capital gains associated with the land" when there doesn't seem to be any clean way to differentiate what comes from land.

It is done all the time via depreciation calculations.

That's like saying you don't understand why the government just sending Altay a $1billion check with the pre-condition that he spends it all gets a bad rap.

There's no reason to favor home ownership -- look at home ownership rates in Germany vs S. Europe. Then look at the health of their economies and living conditions.

This NPR podcast explains it as well as other economic policies that receive support from the majority of economists across the political spectrum: http://www.npr.org/sections/money/2012/07/18/156928675/episo...

If you're willing to criticize the mortgage interest deduction, are you also willing to criticize property taxes? Both are unfair advantages/disadvantages given to homeowners.

As a Georgist, I would say that most unearned wealth ultimately results from private ownership of natural resources (namely land).

When homeowners claim valuable land and hold onto it for decades, without paying the correct market rate for that land (which, of course, they didn't create the value for), they get the benefits of owning this resource without the responsibility.

In short, property taxes are much too high for the actual structures we build, but should be much higher on the underlying land. It's a sane revenue source that would unburden the load placed upon income tax, etc.

[0] https://en.wikipedia.org/wiki/Georgism

[1] https://en.wikipedia.org/wiki/Land_value_tax

[2] https://en.wikipedia.org/wiki/California_Proposition_13_(197...

You do realize that renters pay property tax, just indirectly, right? Property taxes aren't paid only by owner-occupied homes.

Mortgage tax deductions are only on a primary home, so they don't apply to owners of rental units.

Put simply: property taxes are NOT a penalty for homeownership, they are paid by everyone. Mortgage tax credit is only given to homeowners.

And importantly, only enjoyed by homeowners who got the mortgage before the benefit of the tax deduction started getting capitalized into the value of the house.

wait, what? There's a $250k capital gains exemption for sale of primary home lived in 2 of past 5 years, so isn't capital gain basically irrelevant to anyone but very wealthy? Do you know something I don't? (reasonably likely)

What he means is that the deduction has been "priced in" to the price of homes/mortgages. In a similar story, a company I used to work for once offered employees a $x incentive to live close to the office. They then found that the price of homes in the area immediately went up by $x.

Got it, of course! Capitalized could be a formal tax term in this case, but it was just meant in terms of actual plain capitalization generally.

Yeah, mortgage tax deduction, like all incentives that encourage borrowing more money, ends up being a transfer of wealth from new homebuyers to whoever had owned property outright (whether older long-term homeowners or developers or real estate investors).

Very important point.

> Mortgage tax deductions are only on a primary home, so they don't apply to owners of rental units.

Mortgage interest on a rental unit is deductible against the rental income on that unit for obvious reasons: it's a business expense for the rental business and hence taken out of gross revenue for that business to figure out the (taxable) profits.

Specifically, for US individual federal taxes in 2016, see Form 1040, Schedule E, line 12. This is the form you use if you haven't actually formally incorporated your rental activity as a business.

Note that you can also deduct your spending on repairs to the rental property, insurance on it, property taxes (line 16 on that form), and so forth, for the exact same reasons: income taxes on business-like activity are levied on net income, not gross income.

The only people who can't take a mortgage interest deduction are people who have a second home that they are _not_ renting out.

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