"Children love secret club houses. They love secrecy even when there's no need for secrecy." - Donna Tartt
Call it an American birthright - or at least the right homeowners suggest they have. Economist want to see it go away. But as long as the wealthy benefit more from it, the chances mortgage rate deduction will disappear anytime soon isn't likely.
The question that these economist have is whether the whole home ownership scheme would fall apart if the tax deduction for mortgages somehow disappeared? They say it wouldn't. Non-economists suggest to their elected officials that simply entertaining the idea is paramount to political suicide.
Celia Chen, a senior director and housing economist at Moody's Analytics is one who offers an argument against the deduction. She says: "Its intention was to increase the rate of homeownership" and suggest that it did nothing of the sort. What it did do, and this is why many economists suggest the notion is obsolete, is increase the size of homes Americans buy. And who buys the biggest homes? The wealthy.
What some are suggesting is that not only should the limit on the deduction be lowered from its current million dollar cap (and $100,000 on home equity loans) but there should be some tie in to the amount of household income that is eligible.
As recently as June of 2011, the concept of homeownership still was at the center of the American Dream. Renters are upset that the deduction may go away as they enter the housing market. But neither of these are necessarily good reasons to keep the deduction.
Do you remember a time when credit card interest was also deductible? Probably not. In 1986, this deduction was eliminated and it opened the door for the mortgage deduction to also be removed. Realtors are worried that if there is any tinkering done with the tax rate at the high end, it would simply open the door to a potential trickle down effect.
And to a degree, they have a point. While many wealthy homeowners are able to use the deduction to better afford second homes, the high end housing market would suffer. If that is the case, higher wage earners would price middle class wage earners out of their traditional housing markets.
According to the New York Times, "The Congressional Joint Committee on Taxation estimated that it cost $90 billion last year and would cost $484 billion from 2010 to 2014. Depending on your point of view, this is either a very large revenue loss to the federal government or a very large saving for home-owning taxpayers."
Yet a blanket answer to the problem is not easy. Everyone's tax situation is different. One answer is not going to fit all incomes. But it could impact lower wage earners to a greater degree.
Most agree that the rich would still buy nicer homes and live wherever they desire. What would happen is easily termed as modification. Most mortgages are built with the deduction in mind. And because of this, it amounts to a subsidy.
Don't expect it to go away any time soon. But in truth, it can't - and probably - should stay.
