When the president formed the tax advisory panel to simplify the tax code (explore a replacement scenario for the Alternative Minimum Tax), he requested that the group preserve support for home ownership – read between the lines: keep the mortgage interest and property tax deductions.

[Long considered untouchable, the deductions for mortgage interest and property taxes represent $75 billion in lost tax revenue for the federal government and was recommended [NYT]](http://www.nytimes.com/2005/11/03/business/03tax.html?pagewanted=print) for elimination by the panel.

limiting the home mortgage interest and real estate tax deduction: Essentially “cutting it from the current cap of a little more $1 million to as low as $227,000 in cheaper housing markets like Springfield, Ohio, to as high as $412,000 in places like New York and many of its suburbs.”

giving a tax credit a tax credit: “equal to 15 percent of the interest paid on a mortgage below the cap, rather than a deduction that can be worth as much as 35 percent for taxpayers at the high end of the income scale.”

Critics of the deduction say that it has done very little to increase homeownership:

“For all the talk of bolstering home ownership, said [Edward L. Glaeser, an economics professor at Harvard [Miller Samuel]](https://millersamuel.com/research/gallery-view.php?ViewNode=1106013654NOEow&Record=0&Offset=0), the mortgage tax deduction has done very little to help people into homes. He said the subsidy to taxpayers implicit in the deduction had varied widely over the last 40 years, going up and down with the fluctuation of inflation and interest rates. Yet home ownership over the period has drifted in a band of 63 to 69 percent.”

The deduction would be phased out over 5 years.

Its interesting to see well-respected economists like Mr. Glazer, and Mark Zandi of Economy.com come out against the deduction. Analysis as to its impact on the housing market will undoubtedly be done. One would expect that there would be a loss of a significant amount of home equity since nominal monthly housing payments could be 30% to 40% higher. It has been speculated that the loss of the deduction would result in a loss in US property equity of at least 15% if the deduction takes effect.

I wonder if the tax panel expects this would be a zero-sum gain or close to it based on the premise that all other revenues would still be maintained if the deduction was enabled. Since housing is one of the largest economic sectors there is, construction and other services related to housing would be hit hard, lowering tax revenues from those sources.

…all for the sake of simplifying the current tax code.

Webmaster’s note:
The anecdotal use of the phrase sacred cow appearing in the NYT article was used here first on Matrix yesterday 😉 [Those Evil Hamburger Eating Rich, The Tax Panel Wants Their Fair Share Of The Sacred Cow [Matrix]](http://matrix.millersamuelv2.wpenginepowered.com/?p=199)


2 Comments

  1. pcampbell November 4, 2005 at 7:55 am

    This administration – Republicans and Democrats, are hilarious (dangerously so) in their attempts to find an easy way out of their mistakes. They have long been willing to reduce the lower and middle income workers to slaves to their jobs and are now ready to attack the upper income segment (of which I am not a part ) who have a right to their expensive homes, ect, – they work very hard for them. Let’s increase the middle and upper income population and reduce the lower. Better yet – elect George Carlin – at least he admits he’s nuts!

  2. Environmental Friendly November 4, 2005 at 8:10 pm

    Has anyone got some research on how much home-building is possible in the USA? Suburban sprawl is the worst thing to have happened to the country, and has significantly deteriorated the quality of the environment. Sure, we should have more regulation and taxes to curb this menace of sprawl. I am sure the lobbyists of the home-builders would be looking at this with sabres in their hands. 🙂

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