Tax Policy and the Housing Bubble

[Keller]

Excellent blog about the inefficiencies in the housing market caused by politically motivated tax incentives. (I'm not biased or anything :) )

---------------------------------------------------------------

Tax Policy and the House Price Bubble

The bursting of the recent house price bubble has focused attention on the failures of monetary and regulatory policy. However, tax policy also likely played a role by providing tax subsidies that contribute to a cult of home ownership. This policy is flawed. However, it is politically difficult to change because households see the benefits of tax subsidies and higher house prices but do not recognize the accompanying costs. By showing the downside of high prices, the housing bust provides an opportunity to escape this political trap.

Current tax law exempts capital gains on private homes up to $500,000 and treats mortgage interest as a deduction. Both measures are intended to help middle-class families, yet the reality is they distort the economy, are costly, and likely do little to make working families better off. That speaks for changing housing’s tax treatment.

The mortgage interest deduction is extremely expensive, costing the Treasury approximately eighty billion dollars in 2007. Moreover, it is highly regressive because high-income taxpayers get to deduct their interest payments at top marginal tax rates, whereas others deduct at lower tax rates. That means high-income taxpayers get a higher subsidy rate, and their subsidy is further increased because they also tend to have larger mortgages. Meanwhile, many poor workers get no housing assistance because they rent and rental expenses are non-deductible.

Both the mortgage interest deduction and housing capital gains exemption encourage home ownership. Mortgage interest deductibility encourages switching from renting to owning, while the capital gains exemption encourages owning housing instead of other forms of wealth.

This tax treatment has increased demand for houses, raising prices. However, higher house prices entail larger mortgages so that households end up with larger gross interest payments that offset much of the interest deduction. Additionally, larger mortgages make households more vulnerable to losses if they have to sell under unfavorable conditions – as is now happening.

Since most households lack capital, higher house prices also make it difficult to come up with down-payments. That has encouraged risky non-traditional mortgages such as zero-down products, and these products are a significant factor in the current housing crisis. Furthermore, these mortgages carry higher interest rates that further offset the benefit of mortgage interest deductibility.

At the social level, higher house prices mean both spouses have to work, which undermines family structure. It also puts downward pressure on wages by increasing labor supply. However, the system gives every family an incentive to buy a house to lock-in ownership, even though the system may make them collectively worse off.

Higher home prices are also very unfair from an inter-generational standpoint. Increasingly, younger workers cannot afford houses, and that promises to undermine the market with those buying last losing most.

Finally, excessive home ownership may increase unemployment. This is because workers become tied down to their homes by attached financial obligations, reducing responsiveness to changing job market conditions.

The tax system has helped create a cult of home ownership, and that cult appears to have been an ingredient in the recent house price bubble. Rather than creating wealth, the tax treatment of housing redistributes wealth inter-generationally and makes households financially vulnerable. That means tax policy should change. Here are some suggestions.

First, the capital gains exemption should be abolished for all new home purchases. Instead, the base cost of houses should be indexed to inflation so that homeowners are not taxed on inflation gains. Existing homeowners should be grand-fathered under current law to discourage selling to protect unrealized gains, which would destabilize the housing market.

Second, the ceiling (currently $500,000 per taxpayer) on mortgages qualifying for interest deductibility should be gradually lowered to zero over a ten-year period. Such a gradual phase-out can actually help existing middle-class homeowners because it will make top-end homes relatively less affordable compared to mid-market homes that retain the tax subsidy. That will shift demand toward the mid-market segment, helping maintain mid-market prices and thereby mitigating the housing slump.

Third, since everyone needs housing, the Federal government should phase in a refundable housing cost tax credit available to all, regardless of whether they own or rent. That credit can be financed with revenues generated by phasing out the mortgage interest deduction. During the transition every taxpayer should have the choice between taking either the available mortgage interest deduction or receiving the housing tax credit.

Current tax treatment of housing is intended to benefit working families, but it actually creates bad outcomes. The reality is current tax law distorts the economy, promotes house price speculation, renders households over-indebted and financially vulnerable, and undermines wages and family structure. There is a better way to help working families afford decent housing, and now is a good time for policy to transition in that direction.

Copyright Thomas I. Palley

Found at: http://www.thomaspalley.com/?p=107

[longshot]

I've made it my personal policy not to argue with anything economics related here on the boards. I've only tried to explain certain concepts, or give a new way of looking at things.

With that out of the way...

The article makes some good points. Thanks for posting.

I'm not sure a lot of it is revolutionary,... taxes will always cause distortions in a market.

My issue with this piece is the moral hazard it creates when you blame tax policy for poor personal decisions.

People choose 125% loans.
People choose to buy houses that they can't afford.
People choose variable rate mortgages.

These choices are not a function of tax policy. The tax rules are what they are, and those making decisions based on whatever set of rules need to be responsible for their actions.

http://www.becker-posner-blog.com/archives/2007/08/against_bailout.html

This posting says it a lot better than I can.

[Clove]

My issue with this piece is the moral hazard it creates when you blame tax policy for poor personal decisions.

People choose 125% loans.
People choose to buy houses that they can't afford.
People choose variable rate mortgages.

These choices are not a function of tax policy. The tax rules are what they are, and those making decisions based on whatever set of rules need to be responsible for their actions.

http://www.becker-posner-blog.com/archives/2007/08/against_bailout.html

This posting says it a lot better than I can.I couldn't agree with you more. However, it must be said that tax-policy can influence people's choices.

[longshot]

I couldn't agree with you more. However, it must be said that tax-policy can influence people's choices.

Sure. I would even go further. Instead of "can influence," I would go with "does incentivize." This causes all of the distortions that the article mentions.

Having said that, nobody is putting a gun to your head for you to sign on a 125% variable interest mortgage for a house you can't afford in the first place.

They chose to take on that kind of risk.

[Clove]

Sure. I would even go further. Instead of "can influence," I would go with "does incentivize." This causes all of the distortions that the article mentions.

Having said that, nobody is putting a gun to your head for you to sign on a 125% variable interest mortgage for a house you can't afford in the first place.

They chose to take on that kind of risk.Which is why I agree with you... but it isn't smart for us to rig the game for suckers either- because like it or not we all end up paying for their stupid decisions.

[Hulkein]

Good article. Gave me some terrible flashbacks of Fed Tax though so for that you're a dick.

I wish I majored in economics in undergrad. Would be much more useful with a JD than a BA in Journalism (rofl).

[Keller]

I've made it my personal policy not to argue with anything economics related here on the boards. I've only tried to explain certain concepts, or give a new way of looking at things.

With that out of the way...

The article makes some good points. Thanks for posting.

I'm not sure a lot of it is revolutionary,... taxes will always cause distortions in a market.

My issue with this piece is the moral hazard it creates when you blame tax policy for poor personal decisions.

People choose 125% loans.
People choose to buy houses that they can't afford.
People choose variable rate mortgages.

These choices are not a function of tax policy. The tax rules are what they are, and those making decisions based on whatever set of rules need to be responsible for their actions.

http://www.becker-posner-blog.com/archives/2007/08/against_bailout.html

This posting says it a lot better than I can.

<3 Law and Economics, ie Dick Posner.

That said, tax policy can be used effectively and ineffectively. The unwarranted incentivization of home ownership is one example of ineffective tax policy.

Also, if you've ever got some free time on your hands I think you'd really enjoy some of the Optimal Tax Theory literature out there. If you want recommendations, I'd be happy to find a couple of my favorite articles.

[Gan]

I want to read this... but not tonight. I'm too tired, so its off to bed.

I'll check back on this in the morning.

[Back]

Which is why I agree with you... but it isn't smart for us to rig the game for suckers either- because like it or not we all end up paying for their stupid decisions.

That could be called “socializing loss”.

[Clove]

That could be called “socializing loss”.STFU Back.

[Arkans]

STFU Back.

:rofl:

- Arkans

[Gan]

I'm going to pick this apart a little, because I'm not in agreement with a some of what it says.



The bursting of the recent house price bubble has focused attention on the failures of monetary and regulatory policy. However, tax policy also likely played a role by providing tax subsidies that contribute to a cult of home ownership. This policy is flawed. However, it is politically difficult to change because households see the benefits of tax subsidies and higher house prices but do not recognize the accompanying costs. By showing the downside of high prices, the housing bust provides an opportunity to escape this political trap.
IMO that role is minimal compared to the lending industry passing off billions in loans to 'qualified' borrowers (mainly in the sub-prime borrower category) that were really unqualified. Lets be honest - GREED is the root fault. Greed on the lender/investor level and greed on the buyer level. Feel free to substitute STUPIDITY for greed in the previous sentence.


Current tax law exempts capital gains on private homes up to $500,000 and treats mortgage interest as a deduction. Both measures are intended to help middle-class families, yet the reality is they distort the economy, are costly, and likely do little to make working families better off. That speaks for changing housing’s tax treatment.
Personally I would like to see the exemption on capital gains either tied to the Fannie Mae Jumbo rate thats currrently around 417k. Furthermore I would like to see this strictly exempt for principal residences with documented ownership of 5 years or more. Only exception would be death of a spouse/owner.


The mortgage interest deduction is extremely expensive, costing the Treasury approximately eighty billion dollars in 2007. Moreover, it is highly regressive because high-income taxpayers get to deduct their interest payments at top marginal tax rates, whereas others deduct at lower tax rates. That means high-income taxpayers get a higher subsidy rate, and their subsidy is further increased because they also tend to have larger mortgages. Meanwhile, many poor workers get no housing assistance because they rent and rental expenses are non-deductible.
Here's where I disagree in that this has a severely populist ring and resembles a uniquely sounding robin hood theme. Its a shame the author did not put the same effort in estimating how much a rental deduction would cost the Treasury. I have a feeling it would be significantly greater than $80b.


Both the mortgage interest deduction and housing capital gains exemption encourage home ownership. Mortgage interest deductibility encourages switching from renting to owning, while the capital gains exemption encourages owning housing instead of other forms of wealth.
I would say those two are minor of many reasons to own a home. Its the American dream to own your own home. I would think the primary reason why people want to own vs. rent is that they are paying money to equity/principal rather than to someone else's equity/principal. So, this paragraph I disagree with ALOT, much like the robin hood paragraph above.


This tax treatment has increased demand for houses, raising prices. However, higher house prices entail larger mortgages so that households end up with larger gross interest payments that offset much of the interest deduction. Additionally, larger mortgages make households more vulnerable to losses if they have to sell under unfavorable conditions – as is now happening.
Not on the same level as loose state refinancing laws, loose lending practices by banks throwing loans at unqualified buyers, and greedy buyers purchasing more than they can afford (and being allowed to do so) in order to turn home ownership into an investment vehicle by consistently drawing appreciating equity out of a volitile market valuation based on demand tied into the very same reasons and combined with a huge glut of inventories in high demand population regions. The tax incentive is more of a draw for those seeking to use home ownership as an investment tool rather than owning a home.


Since most households lack capital, higher house prices also make it difficult to come up with down-payments. That has encouraged risky non-traditional mortgages such as zero-down products, and these products are a significant factor in the current housing crisis. Furthermore, these mortgages carry higher interest rates that further offset the benefit of mortgage interest deductibility.
And yet the bolded part has NOTHING to do with TAXES. He could have stopped right here and would have ended on a correct note. At first those types of loans (he forgot to mention stated income (liars loans)) had higher interest rates - but with the advent of coorespondent lending and a huge demand for securitization - there were broker shops (non-traditional lenders) who were allowed to hand loans out at par levels then make their points on the back end in bundles sold back to lenders or directly to investors (securitized). When you let individual loan originators have the power to dictate what rates are chosen for the borrowers - thats when pandora's box was opened.


At the social level, higher house prices mean both spouses have to work, which undermines family structure. It also puts downward pressure on wages by increasing labor supply. However, the system gives every family an incentive to buy a house to lock-in ownership, even though the system may make them collectively worse off.
So the family structure, to be successful, means that one parent should stay at home and not pursue a professional career? :wtf: ClydeR???
Yet higher housing prices are not the ROOT of the dual working household. You can attribute that to increases in overall costs and standards of living in addition to inflated housing prices. Not to mention that there is still the option, as evidenced by an increase in housing demand in non-popular population regions, of relocation because the cost of housing is too expensive. Furthermore, a decrease in the wage rate will offset an increase in the labor supply by increasing the labor demand - because work is now cheaper - more positions can be offered at lower rates = more ROI for employers.


Higher home prices are also very unfair from an inter-generational standpoint. Increasingly, younger workers cannot afford houses, and that promises to undermine the market with those buying last losing most.
Assuming that most young workers will not relocate to areas where housing is cheaper. Then again, if you're a fresh college grad who wants to pay $1m for that 1500 sq.ft. 1950's era flat in downtown San Francisco just to be part of the 'scene' - then GOOD LUCK TO YOU.


Finally, excessive home ownership may increase unemployment. This is because workers become tied down to their homes by attached financial obligations, reducing responsiveness to changing job market conditions.
The non-migratory effect of home ownership has been around since the housing boom first started post-WW2. Basically a solution of this article is that not everyone should own a home, ergo they should rent. I wonder how many rent houses this guy owns? Not to mention that people do follow job relocations by selling and purchasing new homes in other regional markets. Abolishing the capital gains exemption in these cases will penalize those and further stifle mobility and create the effect described above.


The tax system has helped create a cult of home ownership, and that cult appears to have been an ingredient in the recent house price bubble. Rather than creating wealth, the tax treatment of housing redistributes wealth inter-generationally and makes households financially vulnerable. That means tax policy should change. Here are some suggestions.
Yet not a major ingredient. More like a spice that can be excluded but not at the expense of the meal being cooked. Lets put this effort into uniform regulation of the lending/banking market first. Lets actually patch the hole before we start reworking other parts of the dam.


First, the capital gains exemption should be abolished for all new home purchases. Instead, the base cost of houses should be indexed to inflation so that homeowners are not taxed on inflation gains. Existing homeowners should be grand-fathered under current law to discourage selling to protect unrealized gains, which would destabilize the housing market.
Add a time stipulation and I'll agree. Kill the gains on 'flipping' and quit further penalizing those home owners who do need and attempt to relocate in order to follow a job or employment across the country.


Second, the ceiling (currently $500,000 per taxpayer) on mortgages qualifying for interest deductibility should be gradually lowered to zero over a ten-year period. Such a gradual phase-out can actually help existing middle-class homeowners because it will make top-end homes relatively less affordable compared to mid-market homes that retain the tax subsidy. That will shift demand toward the mid-market segment, helping maintain mid-market prices and thereby mitigating the housing slump.
Here's where I disagree. By eliminating the interest deductability, you're penalizing millions of middle class home owners who have no desire to buy unwisely or over their head. Fix the lending laws instead and make the greedy lenders and stupid buyers unable to hook up and it will be a win/win all the way around - even for the middle class home owner who did buy wisely and has no intention of flipping or sucking equity out of market valued appreciation.


Third, since everyone needs housing, the Federal government should phase in a refundable housing cost tax credit available to all, regardless of whether they own or rent. That credit can be financed with revenues generated by phasing out the mortgage interest deduction. During the transition every taxpayer should have the choice between taking either the available mortgage interest deduction or receiving the housing tax credit.
Ron Paul? Is that you? Or is it Robin Hood speaking? Seriously. No thanks.


Current tax treatment of housing is intended to benefit working families, but it actually creates bad outcomes. The reality is current tax law distorts the economy, promotes house price speculation, renders households over-indebted and financially vulnerable, and undermines wages and family structure. There is a better way to help working families afford decent housing, and now is a good time for policy to transition in that direction.
So the solution to help working families that own homes by making their taxes higher so that non-home owners can have a tax break. :(
I'm not in agreement.


Having said that, nobody is putting a gun to your head for you to sign on a 125% variable interest mortgage for a house you can't afford in the first place. They chose to take on that kind of risk.
WINNER


<3 Law and Economics, ie Dick Posner.
Me 2. :)

[Clove]

IMO that role is minimal compared to the lending industry passing off billions in loans to 'qualified' borrowers (mainly in the sub-prime borrower category) that were really unqualified. Lets be honest - GREED is the root fault. Greed on the lender/investor level and greed on the buyer level. Feel free to substitute STUPIDITY for greed in the previous sentence.QFT
Here's where I disagree in that this has a severely populist ring and resembles a uniquely sounding robin hood theme. Its a shame the author did not put the same effort in estimating how much a rental deduction would cost the Treasury. I have a feeling it would be significantly greater than $80b.I'm extremely curious about his reasoning here as well. I'm always suspicious of "lost tax revenue" arguments in the first place.

Assuming that most young workers will not relocate to areas where housing is cheaper. Then again, if you're a fresh college grad who wants to pay $1m for that 1500 sq.ft. 1950's era flat in downtown San Francisco just to be part of the 'scene' - then GOOD LUCK TO YOU.People don't always make rational choices that best fits their economic situation. As longshot previously mentioned we call these people "stupid". My middle brother graduated college last year, took a look around New England, quickly decided he couldn't afford the market and took a job in San Antonio. He bought his first house this year, brand new (for less than half of the average cost of a house up here). Using your head FTW.


Not to mention that people do follow job relocations by selling and purchasing new homes in other regional markets. Abolishing the capital gains exemption in these cases will penalize those and further stifle mobility and create the effect described above.QFT

Bank and Flipper greed combined with buyer stupidity FTL.

[Keller]

Here's where I disagree in that this has a severely populist ring and resembles a uniquely sounding robin hood theme. Its a shame the author did not put the same effort in estimating how much a rental deduction would cost the Treasury. I have a feeling it would be significantly greater than $80b.

I disagree (with you) 100%.

The problem is that there is no horizontal equity between similar wage earners, one renting a home for $1200/mo and one paying a $1200 mortgage. Further, the incidence of the subsidy proves that there is a sharply regressive tax w/r/t vertical equity -- meaning that someone who purchases a million dollar home will a million dollar income will receive a much larger subsidy (even in proportion to income) than someone who buys a 200k home on a 200k income.

Preferably, I'd like to see no subsidies at all given to home-ownership/rentership -- but in the event that it is politically unavailable to remove the subsidy it should be adjusted so that it is a flat exemption (like the personal exemption). There is a strong policy argument that there is a basic cost of living which includes the cost of a home (bought or rented). So let's allow a 3k/yr (this number is pulled from thin-air) personal home exemption. Allow an additional 1k per child (because the bigger the family, the bigger the home). Make these figures cover a bare minimum type house. If a rich family wants to buy an expensive house -- let them. But I don't want to see the federal gov't giving a larger subsidy to that family because they decided to spend more on their home.

[Clove]

I disagree (with you) 100%.

The problem is that there is no horizontal equity between similar wage earners, one renting a home for $1200/mo and one paying a $1200 mortgage. Further, the incidence of the subsidy proves that there is a sharply regressive tax w/r/t vertical equity -- meaning that someone who purchases a million dollar home will a million dollar income will receive a much larger subsidy (even in proportion to income) than someone who buys a 200k home on a 200k income.

Preferably, I'd like to see no subsidies at all given to home-ownership/rentership -- but in the event that it is politically unavailable to remove the subsidy it should be adjusted so that it is a flat exemption (like the personal exemption). There is a strong policy argument that there is a basic cost of living which includes the cost of a home (bought or rented). So let's allow a 3k/yr (this number is pulled from thin-air) personal home exemption. Allow an additional 1k per child (because the bigger the family, the bigger the home). Make these figures cover a bare minimum type house. If a rich family wants to buy an expensive house -- let them. But I don't want to see the federal gov't giving a larger subsidy to that family because they decided to spend more on their home.Housing costs are not the same across markets. Why should YOU decide how much is "appropriate" to spend on housing?

[Keller]

Housing costs are not the same across markets. Why should YOU decide how much is "appropriate" to spend on housing?

The only rational policy for allowing any subsidy whatsoever (and then all I think it does is build the economic benefit into the cost of the home, so what's the point?) is that it helps defer the cost at low income levels. My point was not that EYE should decide how much is "appropriate", but instead that THE "appropriate" subsidy should be capped AND available to BUYERS as well as RENTERS.

[Clove]

The only rational policy for allowing any subsidy whatsoever (and then all I think it does is build the economic benefit into the cost of the home, so what's the point?) is that it helps defer the cost at low income levels. My point was not that EYE should decide how much is "appropriate", but instead that THE "appropriate" subsidy should be capped AND available to BUYERS as well as RENTERS.I'm not against providing tax incentives to renters, other than it reduces the incentive to own property which (regardless of the esteemed author's opinion) is a good policy. It's an asset that provides security to families.

[Clove]

I also challenge anyone to demonstrate that tax breaks to mortgage interest significantly impact demand and therefore price of housing. Demand for housing has more to do with area population and available housing. Someone will buy property to either live in or rent either way. Real estate value consistantly rises because we're making more people but we aren't making more land.

[Keller]

I also challenge anyone to demonstrate that tax breaks to mortgage interest significantly impact demand and therefore price of housing. Demand for housing has more to do with area population and available housing. Someone will buy property to either live in or rent either way. Real estate value consistantly rises because we're making more people but we aren't making more land.

It is conclusive that the mortgage interest deduction as well as the 500k ltcg exemption for primary residences (lived in for 2 of the past 5 yrs) is merely built into the price of the house. On the opposide side of the policy debate, that's the single biggest impediment to removing those deductions is that would produce lower home prices and therefore harm individuals who purchased homes relying on those deductions.

To what degree are those subsidies responsible for the cost of a home? I suppose some economists have done the math -- but I've never seen discrete numbers. Maybe someone else has.

[Keller]

I'm not against providing tax incentives to renters, other than it reduces the incentive to own property which (regardless of the esteemed author's opinion) is a good policy. It's an asset that provides security to families.

Why don't we provide similar incentives for incuring debt to purchase other assets that provide security to families?

[Clove]

It is conclusive that the mortgage interest deduction as well as the 500k ltcg exemption for primary residences (lived in for 2 of the past 5 yrs) is merely built into the price of the house.I don't think so. Do sellers give a cash discount for sales? Does the price adjust based on a lower interest rate?

[Keller]

I don't think so. Do sellers give a cash discount for sales? Does the price adjust based on a lower interest rate?

You're being silly. It's simple economics. If the effective purchase price is lower due to a federal tax subsidy, obviously the market will shift up to account for the ACTUAL economic cost of home-ownership.

Are you saying that absent these subsidies home prices would not go down even one cent?

[Clove]

You're being silly. It's simple economics. If the effective purchase price is lower due to a federal tax subsidy, obviously the market will shift up to account for the ACTUAL economic cost of home-ownership.

Are you saying that absent these subsidies home prices would not go down even one cent?I can't say that house prices won't change, but I seriously doubt they will change significantly. When interest rates rise, house prices fall (even though buyers are writing off more interest). Can you explain that phenomenon?

[Keller]

I can't say that house prices won't change, but I seriously doubt they will change significantly. When interest rates rise, house prices fall (even though buyers are writing off more interest). Can you explain that phenomenon?

Because the subsidy is a function of the interest rate. You're paying 100% of the increased interest, but get a "handout" for only a percentage. So your effective price is going up, but it is marginally offset by the "handout".

edit: It's really a subsidy, not a handout. I just like using pejorative terms w/r/t subsidies I don't approve of because it's all the rage.

[Clove]

Because the subsidy is a function of the interest rate. You're paying 100% of the increased interest, but get a "handout" for only a percentage. So your effective price is going up, but it is marginally offset by the "handout".

edit: It's really a subsidy, not a handout. I just like using pejorative terms w/r/t subsidies I don't approve of because it's all the rage.Regardless the function rises with the interest. The price of real estate is not heavily reliant on interest tax deductions it has much more to do with supply and demand. I will of course withdraw my opinion if we can find an economic study with hard data that contradicts me.

[Gan]

I disagree (with you) 100%.

The problem is that there is no horizontal equity between similar wage earners, one renting a home for $1200/mo and one paying a $1200 mortgage. Further, the incidence of the subsidy proves that there is a sharply regressive tax w/r/t vertical equity -- meaning that someone who purchases a million dollar home will a million dollar income will receive a much larger subsidy (even in proportion to income) than someone who buys a 200k home on a 200k income.
With great risk comes great reward. I understand where you're coming from; however, I dont like the implications it would have on the natural behaviors of consumption. I mean, we could just restrict all housing past/present/future to be of a certain type, make, value, etc... and make everything uniform and equal. But then I'd have to start calling you comrade instead of neighbor.


Preferably, I'd like to see no subsidies at all given to home-ownership/rentership -- but in the event that it is politically unavailable to remove the subsidy it should be adjusted so that it is a flat exemption (like the personal exemption). There is a strong policy argument that there is a basic cost of living which includes the cost of a home (bought or rented). So let's allow a 3k/yr (this number is pulled from thin-air) personal home exemption. Allow an additional 1k per child (because the bigger the family, the bigger the home). Make these figures cover a bare minimum type house. If a rich family wants to buy an expensive house -- let them. But I don't want to see the federal gov't giving a larger subsidy to that family because they decided to spend more on their home.
What you're proposing is a flat tax on ownership or rentership. I'll buy the ownership portion - and consider those who get a higher (jumbo) mortgage and the costs of interest as a cost of doing business. I dont agree on the rentership incentives.


I also challenge anyone to demonstrate that tax breaks to mortgage interest significantly impact demand and therefore price of housing. Demand for housing has more to do with area population and available housing. Someone will buy property to either live in or rent either way. Real estate value consistantly rises because we're making more people but we aren't making more land.
Based on my direct experience in the title industry, closing real estate transactions, and working with agents and lenders first hand... I can attest to the fact that rarely if at all will you see buyers decide NOT to purchase based on prospective tax breaks or incentives. For cash transactions on primary residence sales - its all about the contract price of the property/home. For loan transactions its about price and interest rate/equity down issues. And from a seller's perspective - having the capital gains limit rarely if at all is the primary reason to sell.


It is conclusive that the mortgage interest deduction as well as the 500k ltcg exemption for primary residences (lived in for 2 of the past 5 yrs) is merely built into the price of the house.
Conclusive according to who? And in what region? Because home prices here are all about inventory supply and demand.



On the opposide side of the policy debate, that's the single biggest impediment to removing those deductions is that would produce lower home prices and therefore harm individuals who purchased homes relying on those deductions.

To what degree are those subsidies responsible for the cost of a home? I suppose some economists have done the math -- but I've never seen discrete numbers. Maybe someone else has.
I've never seen anything resembling this at all. Furthermore I would love a chance to review that data IF it exists.


Why don't we provide similar incentives for incuring debt to purchase other assets that provide security to families?
Once upon a time you could claim a deduction for the interest paid on credit card or auto loan purchases. I dont know when that was revoked though. I wonder which group on the hill was responsible for that change?


I don't think so. Do sellers give a cash discount for sales? Does the price adjust based on a lower interest rate?
Sellers do not give discounts on the basis of the transaction being cash or through a 3rd party (lender). The contract sales price is exactly what it is. Now somewhere during the negotiation period - the seller might give incentives or discounts in lieu or repairs or other things - but I've never seen a contract amendment or special provision giving the buyer discounts based on the option of buying with cash or through a loan.


You're being silly. It's simple economics. If the effective purchase price is lower due to a federal tax subsidy, obviously the market will shift up to account for the ACTUAL economic cost of home-ownership.

Are you saying that absent these subsidies home prices would not go down even one cent?
I'll say that I have not seen any evidence that housing prices are dictated in any way from forward looking prospects of tax rebates on buyers purchasing principal residences. This might be behavior seen with people buying investment properties - but not principal residences.


I can't say that house prices won't change, but I seriously doubt they will change significantly. When interest rates rise, house prices fall (even though buyers are writing off more interest). Can you explain that phenomenon?
Interest rates rise thus pushing down on demand, so supply pricing shifts down to accomodate.


Because the subsidy is a function of the interest rate. You're paying 100% of the increased interest, but get a "handout" for only a percentage. So your effective price is going up, but it is marginally offset by the "handout".

edit: It's really a subsidy, not a handout. I just like using pejorative terms w/r/t subsidies I don't approve of because it's all the rage.
Thats one way to look at it. I dont believe that most buyers are that forward looking though. Most buyers see an increase in interest rate as an increase in monthly payments and direct affordability. Its all about that monthly payment and escrows for taxes/insurance... not how much they can deduct for points at years end.


Regardless the function rises with the interest. The price of real estate is not heavily reliant on interest tax deductions it has much more to do with supply and demand. I will of course withdraw my opinion if we can find an economic study with hard data that contradicts me.
Same here.

[Keller]

With great risk comes great reward. I understand where you're coming from; however, I dont like the implications it would have on the natural behaviors of consumption. I mean, we could just restrict all housing past/present/future to be of a certain type, make, value, etc... and make everything uniform and equal. But then I'd have to start calling you comrade instead of neighbor.

Natural behaviors of consumption? There is NOTHING "natural" about a market that is influenced by tax subsidies. What are you talking about?


What you're proposing is a flat tax on ownership or rentership. I'll buy the ownership portion - and consider those who get a higher (jumbo) mortgage and the costs of interest as a cost of doing business. I dont agree on the rentership incentives.

My point is that we shouldn't provide incentives one way or the other -- and that if we decide to subsidize living costs that we should do it in a way that provides horizontal as well as vertical equity.



Based on my direct experience in the title industry, closing real estate transactions, and working with agents and lenders first hand... I can attest to the fact that rarely if at all will you see buyers decide NOT to purchase based on prospective tax breaks or incentives. For cash transactions on primary residence sales - its all about the contract price of the property/home. For loan transactions its about price and interest rate/equity down issues. And from a seller's perspective - having the capital gains limit rarely if at all is the primary reason to sell.

It's a function of the market -- regardless of whether people recognize it. Houses would be less expensive if they were not subsidized. How can you possibly argue with that? It's all about the EFFECTIVE cost, not the actual cost. A house, while having a purchase price of 200k, has an effective cost of [something less than 200k] because it is subsidized. It stands to reason, then, that without that subsidy, the market would correct the actual purchase price to be something closer to the effective price.

As to the 500k exemption -- 4 of the 5 condos in my building (meaning, all of them except mine) have been "flipped" in the 4 years we've lived there. Are you telling me that has no impact on the housing market?



Conclusive according to who? And in what region? Because home prices here are all about inventory supply and demand.

I've never seen anything resembling this at all. Furthermore I would love a chance to review that data IF it exists.

When I've got the time I'll put together a list of articles. I'll likely have the time to do that after finals and graduation -- which will be sometime after May 16.



Once upon a time you could claim a deduction for the interest paid on credit card or auto loan purchases. I dont know when that was revoked though. I wonder which group on the hill was responsible for that change?

The physics of tax requires that result. You can either (1) include the loan in income and then deduct interest payments or (2) not include the loan in income and not get a deduction for interest payments. Mixing and matching either provides a subsidy or an excessive tax -- depending on what you mix and match.

[Keller]

Gan and Clove:

http://www.businessweek.com/investor/content/apr2008/pi20080416_336003.htm?chan=top+news_top+news+index _top+story

I will work on an actual composition of tax policy scholarship, but I found this while taking a break.

[Daniel]

With great risk comes great reward. I understand where you're coming from; however, I dont like the implications it would have on the natural behaviors of consumption. I mean, we could just restrict all housing past/present/future to be of a certain type, make, value, etc... and make everything uniform and equal. But then I'd have to start calling you comrade instead of neighbor.



That's a pretty significant leap my friend.

I honestly don't have time to get into this discussion because I just graduated from college and need to go get drunk. However, you don't serve yourself well by taking such an extreme analogy to counter a point.

There is a whole lot of room between land redistribution and non regressive tax rates.

[Keller]

Quick quote from a NYTimes article:

"You can think of the mortgage deduction as a distortion that has helped potential home sellers — not buyers or owners — and this is why the housing industry is so agitated. Research suggests that without the deduction, people would still buy the houses they do now; they would just cost a little less. In effect, the market would adjust downward to reflect some of the decrease in buyers' purchasing power. Though no one knows, a plausible estimate is that prices at the upper end of the housing spectrum would fall by 10 to 15 percent. Prices of less expensive houses would probably rise a bit, because people who don't get a break now would get the tax credit and thus could spend a little more."

And from the same article:

"Lereah, the economist for the National Association of Realtors, said: 'If you're rewriting the book of Genesis, I might have a different approach. But if you make changes in the middle of the game, it's going to have a negative impact of the value of property . . .reduce people's retirement nest egg, funds they have available for college. You're going to cause a great dislocation.'"

From: http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?pagewanted=print

Ok, I need to stop procrastinating.

[Clove]

Gan and Clove:

http://www.businessweek.com/investor/content/apr2008/pi20080416_336003.htm?chan=top+news_top+news+index _top+story

I will work on an actual composition of tax policy scholarship, but I found this while taking a break.This is just an echo of the first article; suppositions. You've been able to write off capital gains on your first home sale since the 70's, however in 1997 they lifted the "first" restriction.

[Keller]

This is just an echo of the first article; suppositions. You've been able to write off capital gains on your first home sale since the 70's, however in 1997 they lifted the "first" restriction.

Do you mean "write off" or exclude to the extent they are re-invested in another home?

[Clove]

Do you mean "write off" or exclude to the extent they are re-invested in another home?You didn't have to claim capital games from the first sale of your personal residence.

[Keller]

What about the economist for the National Association of Realtors that said removing the mortgage interest deduction would have "a negative impact on the value of property"?

[Clove]

What about the economist for the National Association of Realtors that said removing the mortgage interest deduction would have "a negative impact on the value of property"?What about it? Certainly an unbiased source there.

[Keller]

So, for the record, you do not believe the real price of a house is inflated due to the mortgage interest deduction and/or the 500k exclusion?

[Clove]

So, for the record, you do not believe the real price of a house is inflated due to the mortgage interest deduction and/or the 500k exclusion?Not significantly, no. It's an inventory market.

[Gan]

Natural behaviors of consumption? There is NOTHING "natural" about a market that is influenced by tax subsidies. What are you talking about?
Meaning that many advancements are the direct result of the ability to seek and gain profit through great risk and the payoff/tradeoff of that very behavior. If you stifle an area that has a significant impact and is such a significant stimulus on chasing the American dream - what unintended consequences will you create for that restrictive atmosphere? I'm breaking into behavioral economics here - attempting (and probably poorly) to touch on the things that motivate John Q Citizen of America into chasing the American dream and the benefits (see invisible hand theory) that come from that.




My point is that we shouldn't provide incentives one way or the other -- and that if we decide to subsidize living costs that we should do it in a way that provides horizontal as well as vertical equity.
Thats a political decision, much like taxes in general. While I can agree with the flat tax incentive approach you gave, I dont believe in equalization between homeownership and rentorship. Those are two very different animals.





It's a function of the market -- regardless of whether people recognize it. Houses would be less expensive if they were not subsidized. How can you possibly argue with that? It's all about the EFFECTIVE cost, not the actual cost. A house, while having a purchase price of 200k, has an effective cost of [something less than 200k] because it is subsidized. It stands to reason, then, that without that subsidy, the market would correct the actual purchase price to be something closer to the effective price.
You're equating nominal to real costs. Yet, the impact subsidies has on overall pricing is insignificant (IMHO) from my industry perspective, which entails specific buying behaviors associated with the decision to purchase or sell or not to do either.


As to the 500k exemption -- 4 of the 5 condos in my building (meaning, all of them except mine) have been "flipped" in the 4 years we've lived there. Are you telling me that has no impact on the housing market?
It has elevated comp values for the condos in your building/area and also impacts how property taxes are assessed based on those new comps. And as long as there's demand (inventory) to support that 'flipping' then you'll see those prices remain. Now you should have asked if every one of those 'flippers' bought and sold based on the prospect of having a bigger tax subsidie or if they flipped because of the inherent appreciation in value based on inventory demand. Because the answer would be the latter. ;) 9.9 times out of 10 I'm willing to wager.

[Gan]

That's a pretty significant leap my friend.

I honestly don't have time to get into this discussion because I just graduated from college and need to go get drunk. However, you don't serve yourself well by taking such an extreme analogy to counter a point.

There is a whole lot of room between land redistribution and non regressive tax rates.

The leap was intentional for illustrative purposes... I'm glad its served its purpose. ;)

[Keller]

It has elevated comp values for the condos in your building/area and also impacts how property taxes are assessed based on those new comps. And as long as there's demand (inventory) to support that 'flipping' then you'll see those prices remain. Now you should have asked if every one of those 'flippers' bought and sold based on the prospect of having a bigger tax subsidie or if they flipped because of the inherent appreciation in value based on inventory demand. Because the answer would be the latter. ;) 9.9 times out of 10 I'm willing to wager.

I think a much more important factor is that they can convert income (buying and selling real estate) which SHOULDN'T even be considered capital gains, imo (as they should be considered dealers in real estate if they sell their principle residence more then 3 times in a 10-yr span w/o reasonable cause) into non-taxable gain.

[Gan]

"Lereah, the economist for the National Association of Realtors, said: 'If you're rewriting the book of Genesis, I might have a different approach. But if you make changes in the middle of the game, it's going to have a negative impact of the value of property . . .reduce people's retirement nest egg, funds they have available for college. You're going to cause a great dislocation.'"


What about the economist for the National Association of Realtors that said removing the mortgage interest deduction would have "a negative impact on the value of property"?

From that very article: 9th paragraph


Economists don't agree on much, but they do agree on this: the interest deduction doesn't do a thing for homeownership rates. If you eliminated the deduction tomorrow, America would have the same number of homeowners, the same social networks, the same number of gardens. Ergo, the subsidie has negligible impact on buying, selling, or owning a home.

Dont get me wrong, I see your point and I agree that taxes in general favor the rich. There needs to be some levelling of the playing field - and I agree with the sentiment in the article that if the subsidie were eliminated completely that very few would feel the effect simply because the majority of home owners dont make enough to get past the general deduction that prohibits one from itemizing and taking the mortgage interest deduction.

Where I disagree is that housing prices are propped up by the subsidie. Perhaps in a miniscule way - but not to the extent that a selection of industry experts or economists might indicate. And finding more than a few economists who agree complicitly with each other in a room full of economists happen less frequently than winning the lottery more than once. We economists agree less than a room full of meteorologists.

Bottom line is that [typical] principal residence buyer behavior, for the most part, is predicated upon overall price of the home and what they can get a loan for, interest rate, and monthly mortgage payment. The majority of home buyers will be taking the standard deduction and thus really dont care what their mortgage point deduction will be at tax time, because they wont use it. So if buyer behavior is predicated on the variables of price, interest rate, and monthly payment - then seller behavior is pulled the same way. Ergo that behavior sets up demand which in turn sets up supply.

*I'm adding an edited thought here in that when the typical principal residence buying behavior altered with the advent of loose lending laws and the ability to suck out appreciated equity multiple times in a given year and turned into housing speculation, thats where the recipie for disaster started getting volitile in some areas (west coast, southern east coast, etc.)

[Gan]

I think a much more important factor is that they can convert income (buying and selling real estate) which SHOULDN'T even be considered capital gains, imo (as they should be considered dealers in real estate if they sell their principle residence more then 3 times in a 10-yr span w/o reasonable cause) into non-taxable gain.

Heh, I hate to see what your thoughts are on 1031 and asset conversion vehicles using LLC's and 401k shelters are.

[Keller]

From the 10th paragraph of that article:

The deduction might help some people (like me) to purchase bigger homes than they otherwise would. And it certainly helps people who are selling mansions to get a higher price. But it is hardly the democratic subsidy people think. In fact, it's patently regressive.

Further -- if the subsidy has a negligable impact on the number of homes people own -- what's the policy? If, without the subsidy, as many people would own homes -- why have the subsidy?

I've never said that there is a significant price increase due to the subsidy. Just that there is an increase. I would assume that the price increase is something close to the actual value of the interest deduction discounted for present value.

[Clove]

Which makes the price discussion MOOT.

[Gan]

From the 10th paragraph of that article:


Further -- if the subsidy has a negligable impact on the number of homes people own -- what's the policy? If, without the subsidy, as many people would own homes -- why have the subsidy?
Thats where my fears of unintended consequences would come into play (see my thoughts on the behavioral consumption principals)... Those are probably irrational for the most part... but it deserves at the minimum some discussion.

[Keller]

Heh, I hate to see what your thoughts are on 1031 and asset conversion vehicles using LLC's and 401k shelters are.

Are you asking for my professional thoughts or my personal thoughts? They are much different.

1031: So long as we allow tax-free appreciation, I don't see a problem. There is no liquidity.

LLCs as asset conversion vehicles: I have serious doubts about how long LLCs and c-corps will both survive (meaning that LLCs will either replace the c-corp or LLCs will be severely restricted). But that's a corporate law issue and not a tax issue. I'm not really sure what you're referring to, to be honest.

401ks: Fine with these, too. There are significant restrictions on them (w/r/t amount and timing).

I bet you'd REALLY love to hear my ideals regarding assets with readily ascertainable FMVs. Assuming you do: mark-to-market annually in conjunction with the accounting period to prevent (1) income bunching in the year of sale (having 100k income in one year which results in higher marginal rates than necessary considering the asset appreciated over x years), (2) lock-in effect (not selling appreciated property until death to take advantage of stepped-up basis), and (3) tax-free deferral of appreciation (this sort of counter-balances the bunching issue -- but all lists should come in 3s).

[Keller]

Which makes the price discussion MOOT.

Does this mean I don't have to put together the list of articles?

[Gan]

There is a firm here in Texas that will set up an LLC for you, and with the appropriate filings allow you to move over your 401k into the trust piloted by the LLC and then purchase property for investment - then either collect rents that are put back into the LLC/trust or sell for capital gains which are put back into the LLC/trust. All tax free until you start withdrawing at retirement - then your taxes are modified based on your retirement status (which means you pay a fraction of the taxes that would normally be due by using tax-free 401k funds as well as the avoidance of capital gains taxes to a certain extent. These vehicles, because they are an LLC driven trust will even allow you to add trustees and their 401k capital which can significantly drive up the investment opportunities well beyond any capital gains exempted amount.

Here's where I'll say that the entire structure is as confusing as hell and I might or might not have described it completely accurately.

[Gan]

Does this mean I don't have to put together the list of articles?

You dont have to for me. ;)

[Clove]

There is a firm here in Texas that will set up an LLC for you, and with the appropriate filings allow you to move over your 401k into the trust piloted by the LLC and then purchase property for investment...Holy shit, your property values must be insane down there!

[Gan]

Good thing you put that in italics. ;)

In the Houston area you can go from $60 per square foot to over $200 per square foot in a matter of minutes of travel.

Location, location, location.

[Clove]

Good thing you put that in italics. ;)

In the Houston area you can go from $60 per square foot to over $200 per square foot in a matter of minutes of travel.

Location, location, location.Location!? But they get the same tax break!

[Keller]

Location!? But they get the same tax break!

Are you really going to be a pretentious douchebag?

From the very beginning of this thread all I've claimed is that the value of those subsidies are built into the price of the home and that if removed, it would devalue the property.

[Clove]

Are you really going to be a pretentious douchebag?

From the very beginning of this thread all I've claimed is that the value of those subsidies are built into the price of the home and that if removed, it would devalue the property.I know but that value has a very limited effect, if any. For the simple fact that not everyone finances at all or fully finances their property purchases on top of the fact buyer behavior isn't usually influenced by the tax incentives (as economists agree). If buyer behavior isn't influenced by tax incentives it seems EXTREMELY unlikely that price would be influenced. It certainly wasn't a signficant influence on the recent bubble (or the mid-80's bubble before that).

For the record I don't think higher education costs are effected by tax policy either.

That being said, if the tax incentives don't influence buyer behavior it does beg the question of why it exists at all.

[Gan]

From the very beginning of this thread all I've claimed is that the value of those subsidies are built into the price of the home and that if removed, it would devalue the property.

I'm sure it happens in cases where the buyers are tax savvy individuals who refuse to meet the demand price for that particular home and counter offer at a lower price. I would argue that this example is more of the exception than the norm. Of course it could be that all us Texans who buy property are just dumb hicks from sticksville. :(

I would rate this factor right up(down) there with other utility decision making factors of buyers (or sellers) with regards to neighborhood, condition of the landscaping, type of neighbors (including race, creed, religion, etc...), and so forth. I would call it a utility price factor at best and something that can be overcome through negotiation or compromise on the contract.

My disagreements with the article posted in the OP still stand though. And I did LOL at the fact that the author copyrighted the article as if it had any hopes of being credited for saving our economy. We should copyright some of the ideas that are thrown out here on the PC too!

We need a PC trademark/copyright smilie/icon!!!
:yes:

[Keller]

I'm sure it happens in cases where the buyers are tax savvy individuals who refuse to meet the demand price for that particular home and counter offer at a lower price. I would argue that this example is more of the exception than the norm. Of course it could be that all us Texans who buy property are just dumb hicks from sticksville. :(

I would rate this factor right up(down) there with other utility decision making factors of buyers (or sellers) with regards to neighborhood, condition of the landscaping, type of neighbors (including race, creed, religion, etc...), and so forth. I would call it a utility price factor at best and something that can be overcome through negotiation or compromise on the contract.

My disagreements with the article posted in the OP still stand though. And I did LOL at the fact that the author copyrighted the article as if it had any hopes of being credited for saving our economy. We should copyright some of the ideas that are thrown out here on the PC too!

We need a PC trademark/copyright smilie/icon!!!
:yes:

It's the market, not the individual buyers, that is affected by the subsidy. I don't doubt a lot of buyers don't even recognize it as an asset. One article I skimmed yesterday said that only 1/2 of home-owners even take advantage of the deduction.

[Gan]

I think 1/2 is being way generous. ;)

I would hazard to say any household making under 130k a year would take the standard deduction over itemizing and thus NOT take advantage of the subsidy.

I know that I've owned for... 5 years now and 2008 will be the first year we'll itemize and take the subsidy. Up until then we've balanced everything to the point where we could still take advantage of the standard deduction. Which means I dont have to send out my taxes for preparation. This year will be a different story with my e-business dividend income and expenses and my wife's consulting fees and additional teaching she's been doing for the university.

[Trouble]

I think 1/2 is being way generous. ;)

I would hazard to say any household making under 130k a year would take the standard deduction over itemizing and thus NOT take advantage of the subsidy.

I know that I've owned for... 5 years now and 2008 will be the first year we'll itemize and take the subsidy. Up until then we've balanced everything to the point where we could still take advantage of the standard deduction. Which means I dont have to send out my taxes for preparation. This year will be a different story with my e-business dividend income and expenses and my wife's consulting fees and additional teaching she's been doing for the university.

I was going to bitch about what crazy homeowner with a mortgage wouldn't itemize, but then I actually looked up the 2008 numbers:

Single: $5,450
Head of Household: $8,000
Married Filing Joint: $10,900
Married Filing Separately: $5,450
Qualifying Widow/Widower: $10,900
Dependent: $900-$5,450*
Additional Amount if Blind: $1,050
Additional Amount if age 65 or older: $1,050

I guess I could see the standard deduction covering middle-American families filing jointly. Here in NoVA most people's property taxes would be in the 3-5k range (my wild unfounded guess) and then we have income taxes here in VA, so a single filer would almost always be better to itemize. For example, I had something like 28k in deductions for 2007 and I'm under your 130k hypothetical cut-off (AGI).

Personally, the deductibility of mortgage interest and property taxes contributed to my decision to buy vs rent. In hindsight, I would have been better off renting though.

[Back]

We need a PC trademark/copyright smilie/icon!!!
:yes:

Look what I found. It was originally supposed to be the pc favicon but Kranar could never receive the file.

http://www.zendada.com/images/pctm.jpg

[Clove]

Personally, the deductibility of mortgage interest and property taxes contributed to my decision to buy vs rent. In hindsight, I would have been better off renting though.BUZZZZZZZZ. You're throwing your money out the window if you rent. Herndon houses in 1987 were selling for between 125-150k... 30 years later those same houses are worth about 500k. Your house is an asset. Your rent is an expense.

[Gan]

The decision to rent vs. own should be all about equity. Especially if your mortgage payment equates to your rental range.

[Keller]

Ya -- the imputed income from rental value is what makes homes worthwhile -- even considering many homes are depresciating.

[Gan]

Nice thing is that the value of homes appreciate over the long run (unless your land falls off into the ocean). With rent, its an opportunity you'll never have... ever.

[Trouble]

BUZZZZZZZZ. You're throwing your money out the window if you rent. Herndon houses in 1987 were selling for between 125-150k... 30 years later those same houses are worth about 500k. Your house is an asset. Your rent is an expense.

Well I should have been more specific. If I had rented for the past 2-3 years instead of buying immediately when I moved from Reston to Arlington, I would have not ended up with this crappy building in a crappy market.

It was surely an error on my part because I bought during the height of the market in what turned out to be a building with many issues, yes, but I would have been better off renting while I checked out the various buildings along the strip here. If I had done that and bought now, I could have gotten a nicer unit in a newer building for the price I paid for my lemon in an older building. It's just another case of 20/20 hindsight.

Renting is also cheaper than buying here in NoVA (for the most part), even with the tax advantages. For example, my unit would rent for around 2400 and I pay around 3000 between mortgage and condo fees. Generally speaking though, I agree that ownership has many advantages over the long term.

[Clove]

Renting is also cheaper than buying here in NoVA (for the most part), even with the tax advantages. For example, my unit would rent for around 2400 and I pay around 3000 between mortgage and condo fees. Generally speaking though, I agree that ownership has many advantages over the long term.It doesn't sound like landlords are very intelligent in Northern Virginia. Typically renting costs MORE than buying (for obvious reasons).

You timed your purchase poorly BUT only in the short run. In the long run the value will appreciate goodly.

[Gan]

In the Houston market - rent on a home is on average is 1% of the value of said home. In some areas (medical center) the rent is more unpredictable (sometimes higher, sometimes lower)

150k home = 1500 a month rent.

[Clove]

In the Houston market - rent on a home is on average is 1% of the value of said home. In some areas (medical center) the rent is more unpredictable (sometimes higher, sometimes lower)

150k home = 1500 a month rent.1,125.00/mo mortgage, taxes and insurance.

[Gan]

My mortage (PI) would make you cry. (5% 30y fixed with 20% down)

I've had car notes higher.

Which sets me up perfectly for making this one a renter when we're ready to build.

;)

[Clove]

My mortage (PI) would make you cry. (5% 30y fixed with 20% down)

I've had car notes higher.

Which sets me up perfectly for making this one a renter when we're ready to build.

;)Blah blah blah. %5.685 30 year fixed- cheapest cash I ever bought. I was talking about what the owner of a 1,500 month rental was paying for the property. :P

[Keller]

Moving this over here:


See:


Goodman, John L, Jr. and John B. Ittner. (1992) The accuracy of home owners’ estimates of house value. Journal of Housing Economics 2(4): 339-357.




Poterba, James. (1984) Tax subsidies to owner-occupied housing: an asset-market approach. Quarterly Journal of Economics 99(4): 729-752.





Voith, Richard. (1999) Does the federal tax treatment of housing affect the pattern of metropolitan development? Federal Reserve Bank of Philadelphia Business Review: 3-16.




Glaeser, Edward L. and Jesse M. Shapiro. (2002) The benefits of the home mortgage interest deduction. National Bureau of Economic Research Working Paper 9284.



I tried to e-mail my tax policy professor to get an article that deals with the subsidy directly instead of in passing -- he couldn't think of an article off the top of his head, but here is our e-mail conversation:



Prof. Hasen,

Are you aware of any articles that deal extensively with the proposition that if the mortgage interest deduction was removed it would depress the FMV of homes? If you don't, no worries.

Best,
Dustin

His response:


I can't think of any article in particular, but it is certainly the general consensus that removal of the deduction would reduce the price of homes.

--DMH

Those are the only 4 articles I could find atm. I'll try to find more after I'm done with graduation.

[Gan]

There is only one set of scenarios that might occurr on either the buyer or the seller side that would allow for in increase valuation in property - however, that scenario would still be secondary to other primary factors that directly influence overall sales prices of homes in a given area.

Scenario 1:
Tax savvy buyer, while looking at prospective properties, factors in proposed MID (Mortgage Interest Deduction) into his 'range' of acceptable prices he's willing to accept as part of the demand he represents.

Scenario 2:
Tax (and market) savvy seller, while entertaining offers on the property for sale, factors in the possibility of scenario 1 affecting the price threshold of the buyer, elevates his asking price by an arbitrary percentage or amount.

Two things that would interfere with this are...

1. What if the buyer pays cash? No mortgage interest to deduct. No MID to accomodate for in demand or supply pricing. Listing prices are advertised on realtor websites and in the paper - so having arbitrary contracts pre-filled out with different amounts when a prospective buyer drops by would not work...

2. What about the diminishing returns from interest based tax amounts where mortgage interest in the latter years (greater than 50% of the term of the mortgage has elapsed) where the interest paid (annual) is less and less as each year passes?

While I can see this being a factor of one in a hundred other factors, I still can not be persuaded that it is a primary factor influencing the behavior of either buying or selling to the extent that the author in the OP gives it - nor do I see it as the prima facia case to abolish the MID (which is offsett by the AMT I might add) ;)

[Keller]

Sent a second feeler to another tax prof. Here is his response:


I don't know of an article but I am sure that severall exist. I'd would [sic] look at economics databases. Incidentally, there is no doubt that it impacts the price of homes, the question is how much.

[Gan]

How much being the key.

Negligible would equate to it being a non-factor if you ask me.

[Keller]

How much being the key.

Negligible would equate to it being a non-factor if you ask me.

Given the value of the deduction (35% of the annual interest), I'd think it's affect would be something greater than negligible. But I'll look into it further and see if anyone's done an actual economic study on it. So far all I've found are articles the state, as dicta, that it increases the price -- nothing about how much.

[Clove]

Given the value of the deduction (35% of the annual interest), I'd think it's affect would be something greater than negligible. But I'll look into it further and see if anyone's done an actual economic study on it. So far all I've found are articles the state, as dicta, that it increases the price -- nothing about how much.Up to 35% and generally only for the first 8 to 10 years of the mortgage IF the loan is big enough to make it worthwhile to itemize. A large segment of buyers don't or aren't able to capitalize on the tax benefit.

You could suppose that the benefit increases demand but in reality it doesn't. Everyone needs a roof over their head.

You could say that some buyers could afford more expensive homes, however it really isn't a very strong market influence for the simple fact that it is difficult to predict whether or not a buyer is likely to utilize the the tax benefit. It's like suggesting that because office furniture can be depreciated as an office equipment expense that businesses can afford more expensive office furniture (and will therefore buy more expensive furniture). It's a flawed supposition.

So until I see some actual research I'm not really interested in opinions, even expert ones.

Now on the other hand the capital gains exemption most certainly does put pressure on sellers to raise their sale prices as high as possible, for obvious reasons. Conveyance taxes in certain states also effect sale prices (but generally exhibits downward pressure).

[Gan]

Given the value of the deduction (35% of the annual interest), I'd think it's affect would be something greater than negligible. But I'll look into it further and see if anyone's done an actual economic study on it. So far all I've found are articles the state, as dicta, that it increases the price -- nothing about how much.

Thats still not large enough for it to override pricing based on location, inventory levels, and available mortgage interest rates.

For the premise that it affects pricing where effect > $0.00 then I say yes. That being said, there are a myriad of factors that can affect the price of a home for sale that determine how much the seller offers and subsequently accepts what is counter-offered (if any counter-offer is made). Let me know if you'd like a list of the ones I can think of off the top of my head...

For the premise that the effect overrides the big 3 listed two sentences above - well, refer to the two sentences above.

[Daniel]

I find it amazing that people are arguing that a reduction in cost has no effect on price. It's a simple cost curve FFS.

[Keller]

Up to 35% and generally only for the first 8 to 10 years of the mortgage IF the loan is big enough to make it worthwhile to itemize. A large segment of buyers don't or aren't able to capitalize on the tax benefit.

You could suppose that the benefit increases demand but in reality it doesn't. Everyone needs a roof over their head.

You could say that some buyers could afford more expensive homes, however it really isn't a very strong market influence for the simple fact that it is difficult to predict whether or not a buyer is likely to utilize the the tax benefit. It's like suggesting that because office furniture can be depreciated as an office equipment expense that businesses can afford more expensive office furniture (and will therefore buy more expensive furniture). It's a flawed supposition.

So until I see some actual research I'm not really interested in opinions, even expert ones.

Now on the other hand the capital gains exemption most certainly does put pressure on sellers to raise their sale prices as high as possible, for obvious reasons. Conveyance taxes in certain states also effect sale prices (but generally exhibits downward pressure).

Here's the deal: You can say a lot of things. I've provided 4 academic articles by economists with PhDs that all indicate the economic benefit of the deduction is built into the price of the home. I've provided 2 quotes from reputable tax scholars that both indicate the economic benefit of the deduction is built into the price of the home. And you're still saying a lot of things.

It's time for you to find something, anything, that indicates that the economic benefit of the deduction is not included in the price of the home. I'm not interested in your opinion.

[Keller]

Thats still not large enough for it to override pricing based on location, inventory levels, and available mortgage interest rates.

For the premise that it affects pricing where effect > $0.00 then I say yes. That being said, there are a myriad of factors that can affect the price of a home for sale that determine how much the seller offers and subsequently accepts what is counter-offered (if any counter-offer is made). Let me know if you'd like a list of the ones I can think of off the top of my head...

For the premise that the effect overrides the big 3 listed two sentences above - well, refer to the two sentences above.

Who said it overrides pricing based on location, inventory levels, and available mortgage interest rates? When was that the argument?

The argument is whether the economic benefit of the deduction is included in the price of the home.

[Clove]

It's time for you to find something, anything, that indicates that the economic benefit of the deduction is not included in the price of the home. I'm not interested in your opinion.I know you're not but all your expert opinions to date give NO explanation of how or why it's built into the market. Until they do it's just an opinion held by the academic community and while they may be educated experts their opinions can still be wrong.

[Gan]

Who said it overrides pricing based on location, inventory levels, and available mortgage interest rates? When was that the argument?
Thats like saying that the air you breathe will cause cancer. It probably will in some miniscule way. But a rational seller will not use a tax allocation model to calculate the gross sales value of his home based when it is to be sold. I would consider the MID a natural effect that occurs or is attributed by those measuring the market (economists).


The argument is whether the economic benefit of the deduction is included in the price of the home.
And we have concluded that it has some effect (MID affects home values > 0). Now we are applying that to the second part of the OP's article where he's using that to justify the abolishment of the MID BECAUSE the MID impacts home values to such a great extent that it overinflates market values. Here is where I wave the bullshit flag. The big 3 reasons are what set the overall market price and has the greatest impact on said price: location, inventory levels, available mortgage interest rates.

The only way to tell is to create a model where there is no MID and evaluate the home sales data as compared to simliar data where the MID is in existance. Personally, I see the impact the MID has on overall home values/sales as negligible at best. Definately not significant enough to artifically inflate demand or supply pricing - and here is where I have to agree with Clove - lets see some data demonstrating its significant enough to warrant the abolishment of the MID as the OP author proposes.

I'd still like to see your response to the scenario question I proposed in an earlier post...



1. What if the buyer pays cash? No mortgage interest to deduct. No MID to accomodate for in demand or supply pricing. Listing prices are advertised on realtor websites and in the paper - so having arbitrary contracts pre-filled out with different amounts when a prospective buyer drops by would not work...

2. What about the diminishing returns from interest based tax amounts where mortgage interest in the latter years (greater than 50% of the term of the mortgage has elapsed) where the interest paid (annual) is less and less as each year passes?

[Gan]

I find it amazing that people are arguing that a reduction in cost has no effect on price. It's a simple cost curve FFS.

ZOMG what were we thinking!?!?!


EVERYONE! Daniel has officially ended this thread because ITS ALL BASED ON A SIMPLE COST CURVE!

Why doesnt everyone get it!?!

Outstanding contribution Daniel.
:clap:

+1

[Daniel]

I figured I'd save everyone the trouble of making ridiculous claims or suggestions based upon common knowledge.

To answer your scenario question: If someone were to walk up and pay for a house in Cash. they A) Probably don't really care about taxes and B) would probably get a discount for, among other things, the convenience of process. It's just like when you show up with a pre approved mortgage.

[Gan]

I figured I'd save everyone the trouble of making ridiculous claims or suggestions based upon common knowledge.

To answer your scenario question: If someone were to walk up and pay for a house in Cash. they A) Probably don't really care about taxes and B) would probably get a discount for, among other things, the convenience of process. It's just like when you show up with a pre approved mortgage.

Since I dont deal with the actual contract negotiation (I deal with contract execution), I'll poll the realtors I speak with today about seller concessions based on the buyer either paying cash or presenting a pre-qualified mortgage.

I'll throw up their responses this afternoon.

[Daniel]

Cool. While you're at it. What do you think the purpose of the MID is?

Just curious.

[Clove]

Thats like saying that the air you breathe will cause cancer. It probably will in some miniscule way. But a rational seller will not use a tax allocation model to calculate the gross sales value of his home based when it is to be sold. I would consider the MID a natural effect that occurs or is attributed by those measuring the market (economists).

And we have concluded that it has some effect (MID affects home values > 0). Now we are applying that to the second part of the OP's article where he's using that to justify the abolishment of the MID BECAUSE the MID impacts home values to such a great extent that it overinflates market values. Here is where I wave the bullshit flag. The big 3 reasons are what set the overall market price and has the greatest impact on said price: location, inventory levels, available mortgage interest rates.QFT.

[Gan]

Cool. While you're at it. What do you think the purpose of the MID is?

Just curious.

A government subsidy in the form of a reduction of taxable income.

[Daniel]

That's what it is. That is not a purpose.

[Gan]

Thats how I view its purpose.

Its a tax incentive.

[Gan]

Why We Can't Compromise on the Mortgage Interest Deduction,

Housing is the engine that drives this economy, and to even mention reducing the tax benefits of homeownership could endanger property values. Home prices, particularly in high cost areas, could decline 15 percent if the recommendation to convert the mortgage interest deduction to a tax credit gets implemented. That means about a $20,000 to $30,000 reduction in housing equity for a typical homeowner.

The Tax Reform Act of 1986 proved that when the tax benefits associated with real estate ownership are curtailed, the value of real estate declines. In this case, the resulting loss of value in the commercial real estate sector was 30 percent.

The current cap permitting deductions of the interest paid on mortgages of up to $1 million has not been modified or indexed since it was adopted in 1987. We are surprised that the panel would even consider reducing the cap. Basing the cap on complex regional loan limit calculations makes no sense. In California alone, more than a dozen Federal Housing Administration (FHA) limits are in effect in various parts of the state.

Eliminating the mortgage interest deduction would hurt middle-income families the most. According to IRS tax return data from 2003, 52 percent of the families who claim the mortgage interest deduction have household incomes between $60,000 and $200,000.

NAR is waiting to take an official position until the President's Advisory Panel on Federal Tax Reform makes an official recommendation. However, we're concerned that the commission is putting housing on the cutting block.


http://www.realtor.org/government_affairs/mortgage_interest_deduction/nar_position
______________________________________________

Sounds more like a lobbying piece.

I'd like to see the data supporting this position.

:shrug:

[Daniel]

Its a tax incentive.

Incentive to do what?

[Gan]

To pay less taxes.

[Gan]

The MID was the only item left over after the Tax Reform of 1986 that eliminated all deductability for interest on all/any loans.

Some think it incentivises home ownership. I disagree, a renter does not go out and increase their debt merely for the prospect of getting a percentage off of their taxes (providing they itemize instead of taking the standard deduction - to which studies indicate that the rate of itemization of middle class homeowners is 1/3).

The average renter seeks to buy a home for:
1. Utility reasons - to own their own home (American Dream and all that).
2. Financial reasons - to pay rent monies towards their own equity instead of someone elses.

[Daniel]

To pay less taxes.

Lol.

So..the GOVERNMENT, who is dependent on tax revenues is trying to get people to pay LESS taxes?

That's the purpose? Really? Why not just cut the tax rate?

[Daniel]

The MID was the only item left over after the Tax Reform of 1986 that eliminated all deductability for interest on all/any loans.

Some think it incentivises home ownership. I disagree, a renter does not go out and increase their debt merely for the prospect of getting a percentage off of their taxes (providing they itemize instead of taking the standard deduction - to which studies indicate that the rate of itemization of middle class homeowners is 1/3).

The average renter seeks to buy a home for:
1. Utility reasons - to own their own home (American Dream and all that).
2. Financial reasons - to pay rent monies towards their own equity instead of someone elses.


These two statements are not mutually exclusive btw.

[Gan]

Lol.

So..the GOVERNMENT, who is dependent on tax revenues is trying to get people to pay LESS taxes?
LOL thought you knew about Reganomics.



That's the purpose? Really? Why not just cut the tax rate?
Because you dont pay federal taxes when you buy a piece of property. (State/local taxes are usually in the form of tax stamps, etc.)

And yes, I know what you're driving at. So...

Enlighten us then. What do you think the purpose is?

[Gan]

These two statements are not mutually exclusive btw.

I never said they were.

[Parkbandit]

Enlighten us then. What do you think the purpose is?

$5 on him blaming the white man keeping the black man down somehow.

[Gan]

LOL

[Clove]

Or the black woman...
http://southdakotapolitics.blogs.com/south_dakota_politics/images/cynthia_mckinney.jpg

[Daniel]

LOL thought you knew about Reganomics.



Pretty sure this predates Reganomics



Because you dont pay federal taxes when you buy a piece of property. (State/local taxes are usually in the form of tax stamps, etc.)


So? You still pay federal taxes. Why wouldn't you just lower the tax rate if you wanted people to pay less taxes.




And yes, I know what you're driving at. So...

Enlighten us then. What do you think the purpose is?


And I know why you've been disingenuous.

It's pretty obvious that a tax reduction for buying a home is a government attempt to make home buying more attractive. You can sit here and argue all you want about whether or not it actually does.

If it does: Keller is right, increased demand leads to increased prices. We don't need increased home prices at this point, and in fact I'd argue we don't need demand to the point where people are pursuing sub prime loans.

If it doesn't: Why are we throwing away billions of dollars to subsidize home ownership if it isn't working?

[Daniel]

$5 on him blaming the white man keeping the black man down somehow.

Unfortunately, my wager for you actually posting something substantial in a political thread is still open.

[Parkbandit]

Unfortunately, my wager for you actually posting something substantial in a political thread is still open.

THIS from a guy who's great posts include:

Riiiiiight
Woosh
The internet is serious business


You never cease to amaze me. Keep it up.

[Daniel]

THIS from a guy who's great posts include:

Riiiiiight
Woosh
The internet is serious business


You never cease to amaze me. Keep it up.

As opposed to photoshops, Gifs, and "you think there is racism, so you must not have a job"?

Sorry. I don't really care what " pathetic little nerds" who "rock in their little computer chair.. saying "My mom likes me.. I like me.." think about me.

[Gan]

Pretty sure this predates Reganomics.
Actually, the concept of G handing out tax breaks even though G is dependant upon revenue from taxes has been a standard Republican platform since before Reagan. I just gave him credit for the 1986 Tax Reform Act, which happens to pertain directly to the topic at hand. ;)




So? You still pay federal taxes. Why wouldn't you just lower the tax rate if you wanted people to pay less taxes.
Actually they did in the form of the standard deduction, which more middle income homeowners use rather than the MID itemized deduction. So now we go back to the OP idea that MID could be abolished because it also favors the rich (who typically itemize for deductions). Which goes back to my original statement that its just another Robin Hood scheme to penalize the rich for being rich (Luxury Tax). God Bless America - where we reward failure, stifle mediocrity, and penalize success. Or is it God Damn America?






And I know why you've been disingenuous.
Not really. I've stated all along that I do not think the MID affects home values (realistically) to any great factor. Furthermore there is no published data or significant proof to indicate otherwise. Just theoretical affirmations. In the words of the great Cuba Gooding Jr. SHOW ME THE MONEY!


It's pretty obvious that a tax reduction for buying a home is a government attempt to make home buying more attractive. You can sit here and argue all you want about whether or not it actually does.
And other experts argue that MID does not stimulate home purchases on average, for the very reason that not everyone files with itemizations. The only market where this theory comes into play are feasably homes over the Fannie Mae jumbo allocation which is 417k.


If it does: Keller is right, increased demand leads to increased prices. We don't need increased home prices at this point, and in fact I'd argue we don't need demand to the point where people are pursuing sub prime loans.
Keller would be right in theory. But not in reality. Realistically speaking, MID would NOT increase demand in the national housing market for the average priced home for the average American. And in the areas where MID is considered in pricing - it still falls way short of the three primary factors that influence market pricing: location, available inventory, and available mortgage interest rates.



If it doesn't: Why are we throwing away billions of dollars to subsidize home ownership if it isn't working?
So should the IRS do away with the standard deduction too? Since thats used in lieu of the MID for homeowners?

[Clove]

It's pretty obvious that a tax reduction for buying a home is a government attempt to make home buying more attractive. You can sit here and argue all you want about whether or not it actually does.No, not home buying in general. It softens the barrier for buyers that are financing over 200k ish (depending on interest rate). This is an aid to some first-time buyers who are in expensive markets and probably does effect price in that part of the market. However, how much? Nobody seems to have a solid answer. Keller has already said (several times) that he didn't claim it was significant. And I've already said (several times) that I didn't think it effected price significantly. So we're back to Gan and his "breathing air can cause lung cancer" observation.

[Gan]

BUT IT DOES CAUSE CANCER!!!!111one

[Parkbandit]

Unfortunately, my wager for you actually posting something substantial in a political thread is still open.

To further illustrate your hypocracy, I offer you the past 100 days of threads you and I originated:

Daniel’s amazing contribution last 100 days (I'll even double space them to make them look bigger):

1) Parkbandit: Hypocrite and thinks US soldiers are dumb. - A thread that was a pathetic attempt to get even.. which immediately blew up in your face, forcing you to use the “The Internet is serious business” excuse by the 2nd page.

2) This is so motherfucking win – A thread where you linked Youtube videos of the presidential candidates on WWE.

3) The Dregs of Society wasting our taxpayers money. – Taxpayers paying for softball… perhaps your greatest contribution ever.


Now how about mine:

1) Poll: Tuesday Primary Predictions
2) Hillary unable to call McCain out on Economics
3) Gore makes more Green
4) Dean says a Democrat must quit in June
5) Happy Earth Day!
6) Laura Bush on Today
7) Democratic Debate
8) Global Warming - Worse than we thought!
9) Obama: I'd hire Al Gore
10) Hillary Clinton's wealthy pals warn Nancy Pelosi on superdelegates
11) I AGREE WITH HILLARY!
12) Presidential hopefuls are mum on Medicare and Social Security woes
13) McCain aide suspended for this video:
14) A new American.
15) Obama Decries Racial Rhetoric
16) March 4th Primary predictions
17) Democrats: Where to from here?
18) FINALLY! A third party candidate we can back!
19) Dear Mr. Obama..
20) Is Obama "black" enough?
21) Tightening race?
22) Huckleberry Finn's "Fair Tax"
23) There's still fight in the ol' broad!
24) Another way to look at immigration
25) Democrat Debate
26) Can we really afford "Hope" and "Change"?
27) Obama, finally proud!
28) Romney to quit
29) Unchecked immigration sucks for US.


Fantastic contribution.

Insert "The Internet R Serious Business" picture here.

[Daniel]

No, not home buying in general. It softens the barrier for buyers that are financing over 200k ish (depending on interest rate). This is an aid to some first-time buyers who are in expensive markets and probably does effect price in that part of the market. However, how much? Nobody seems to have a solid answer. Keller has already said (several times) that he didn't claim it was significant. And I've already said (several times) that I didn't think it effected price significantly. So we're back to Gan and his "breathing air can cause lung cancer" observation.

Which brings us to the "Why have a 80 billion dollar subsidy if it doesn't do anything" point I made.

[Daniel]

To further illustrate your hypocracy, I offer you the past 100 days of threads you and I originated:

Daniel’s amazing contribution last 100 days (I'll even double space them to make them look bigger):

1) Parkbandit: Hypocrite and thinks US soldiers are dumb. - A thread that was a pathetic attempt to get even.. which immediately blew up in your face, forcing you to use the “The Internet is serious business” excuse by the 2nd page.

2) This is so motherfucking win – A thread where you linked Youtube videos of the presidential candidates on WWE.

3) The Dregs of Society wasting our taxpayers money. – Taxpayers paying for softball… perhaps your greatest contribution ever.


Now how about mine:

1) Poll: Tuesday Primary Predictions
2) Hillary unable to call McCain out on Economics
3) Gore makes more Green
4) Dean says a Democrat must quit in June
5) Happy Earth Day!
6) Laura Bush on Today
7) Democratic Debate
8) Global Warming - Worse than we thought!
9) Obama: I'd hire Al Gore
10) Hillary Clinton's wealthy pals warn Nancy Pelosi on superdelegates
11) I AGREE WITH HILLARY!
12) Presidential hopefuls are mum on Medicare and Social Security woes
13) McCain aide suspended for this video:
14) A new American.
15) Obama Decries Racial Rhetoric
16) March 4th Primary predictions
17) Democrats: Where to from here?
18) FINALLY! A third party candidate we can back!
19) Dear Mr. Obama..
20) Is Obama "black" enough?
21) Tightening race?
22) Huckleberry Finn's "Fair Tax"
23) There's still fight in the ol' broad!
24) Another way to look at immigration
25) Democrat Debate
26) Can we really afford "Hope" and "Change"?
27) Obama, finally proud!
28) Romney to quit
29) Unchecked immigration sucks for US.


Fantastic contribution.

Insert "The Internet R Serious Business" picture here.


So the only posts that count are the first one in a thread?

Flawed logic at best.

[Daniel]

Actually, the concept of G handing out tax breaks even though G is dependant upon revenue from taxes has been a standard Republican platform since before Reagan. I just gave him credit for the 1986 Tax Reform Act, which happens to pertain directly to the topic at hand. ;)


Okay. However, most of these "Breaks" have a "Reason" beyond "Less taxes".




Actually they did in the form of the standard deduction, which more middle income homeowners use rather than the MID itemized deduction. So now we go back to the OP idea that MID could be abolished because it also favors the rich (who typically itemize for deductions). Which goes back to my original statement that its just another Robin Hood scheme to penalize the rich for being rich (Luxury Tax). God Bless America - where we reward failure, stifle mediocrity, and penalize success. Or is it God Damn America?


So the standardized deducation was made available in lieu of the MID? There are a few other reasons I think of off the top of my head. This brings us to the "Air causes cancer" point you and Clove and currently trumpetting.

As for the Robin Hood bit. You don't think that's a little backwards? It would be one thing to levy a new tax for richer people. However, it's another thing entirely to do away with a subsidy.






Not really. I've stated all along that I do not think the MID affects home values (realistically) to any great factor. Furthermore there is no published data or significant proof to indicate otherwise. Just theoretical affirmations. In the words of the great Cuba Gooding Jr. SHOW ME THE MONEY

And other experts argue that MID does not stimulate home purchases on average, for the very reason that not everyone files with itemizations. The only market where this theory comes into play are feasably homes over the Fannie Mae jumbo allocation which is 417k.



Keller would be right in theory. But not in reality.

Okay. Reference my last post to Clove for my response.






So should the IRS do away with the standard deduction too? Since thats used in lieu of the MID for homeowners?

The standard deduction =\ MID.

[Parkbandit]

So the only posts that count are the first one in a thread?

Flawed logic at best.

Illustrates a pattern. The entertainment value of going through all of your useless posts in the political threads didn't outweigh the labor it would take me to pluck them out. This method was easy and showed what a hypocrite you are... which is a win/win in my book.

[Gan]

Okay. However, most of these "Breaks" have a "Reason" beyond "Less taxes".
Intentions do not constrict reality.



So the standardized deducation was made available in lieu of the MID?
Its used (in part) in lieu of the MID for those whose itemizations either are not greater than the standard deduction or by those who choose not to itemize for other reasons.


There are a few other reasons I think of off the top of my head. This brings us to the "Air causes cancer" point you and Clove and currently trumpetting.
So the air causes cancer schtick is only good one way?



As for the Robin Hood bit. You don't think that's a little backwards? It would be one thing to levy a new tax for richer people. However, it's another thing entirely to do away with a subsidy.
Backwards? By removing the subsidy you're removing a tax break - which is in effect taxing the interested party. If you're removing the subsidy for the purpose of penalizing the rich - then its a robin hood effort.



Okay. Reference my last post to Clove for my response.
My response to your response to my response referencing your response to Clove, is to simply reference your response to PB. (let me know if you need help with that)



The standard deduction =\ MID.
It does in some form if it is used in lieu of MID. You know... Air causes cancer and all. ;) Or is that argument only invalid when applied against your theory?

[Daniel]

Illustrates a pattern. The entertainment value of going through all of your useless posts in the political threads didn't outweigh the labor it would take me to pluck them out. This method was easy and showed what a hypocrite you are... which is a win/win in my book.

Illustrates what pattern? I don't routinely create threads, but you do?

Hate to break it to you, but that says absolutely nothing about the quality of your posts. Creating a thread doesn't mean that it isn't political drivel.

It's a shame that you went through all that effort to prove absolutely nothing.

[Daniel]

Intentions do not constrict reality.


Its used (in part) in lieu of the MID for those whose itemizations either are not greater than the standard deduction or by those who choose not to itemize for other reasons.

So the air causes cancer schtick is only good one way?

I'm not the one using that argument Gan. Hence my pointing out the similiarities.





By removing the subsidy you're removing a tax break - which is in effect taxing the interested party. If you're removing the subsidy for the purpose of penalizing the rich - then its a robin hood effort.

Yes it is. In a backwards kind of way.





My response to your response to my response referencing your response to Clove, is to simply reference your response to PB. (let me know if you need help with that)


Lol. No I got it. :)




It does in some form if it is used in lieu of MID. You know... Air causes cancer and all. ;) Or is that argument only invalid when applied against your theory?


I'd just as soon not use it in any instance to be honest with you. It's a cheap way to confuse the issue and makes it impossible to analyze the particular policy in question.

[Parkbandit]

Illustrates what pattern? I don't routinely create threads, but you do?

Hate to break it to you, but that says absolutely nothing about the quality of your posts. Creating a thread doesn't mean that it isn't political drivel.

It's a shame that you went through all that effort to prove absolutely nothing.


I hate to break it to you chump.. my contributions in the political threads outweigh your general responses of "Riiiiight" or "Woosh" or my favorite "The internet is serious business".

But get back to the 'serious' discussion in this thread. It's entertaining to see you twisting in the wind against the tag team of Gan and Clove. You need a good comeback for the air causes cancer... here, I'll give you this one:

http://i36.photobucket.com/albums/e6/belike53/internetseriousvq1.jpg

[Daniel]

Here come the pictures.

[Parkbandit]

:rofl: Come no Danny boy, you can manage some better contribution that that, can't you? That picture was for you to use.. I see you are now cornered and was merely offering you help.

[Daniel]

At least you didn't forget :rofl: this time. We were worried about you.

[Gan]

Which brings us to the "Why have a 80 billion dollar subsidy if it doesn't do anything" point I made.

To further clarify.


The mortgage interest deduction is extremely expensive, costing the Treasury approximately eighty billion dollars in 2007. Moreover, it is highly regressive because high-income taxpayers get to deduct their interest payments at top marginal tax rates, whereas others deduct at lower tax rates. That means high-income taxpayers get a higher subsidy rate, and their subsidy is further increased because they also tend to have larger mortgages. Meanwhile, many poor workers get no housing assistance because they rent and rental expenses are non-deductible.

So how is it regressive or unfair? Because someone has a larger loan and pays more interest shouldnt get to deduct the interest they pay? Who exactly is it unfair to?

If you want an honest answer, I think this subsidy benefits everyone who partakes in it equivalent to the level of participation they bring to the table. Is it necessary? About as necessary as any other tax break thats targeted to a specific tax demographic. Is it efficient? In my opinion it does not affect the market significantly enough to create an inefficiency should it no longer be available - the homeowner (principal residence) market. Real Estate investment markets would be a different matter as the itemization and tax subsidy appear to be different for non-homestead vs. homestead.

Market pricing values for homstead properties are not impacted by the MID's existance significantly enough for the average (non-luxury) middle income home buyer. I still stand by this statement.

That being said, should the subsidy be abolished because it does not represent any significant efficiency to the non-luxury housing market? That question should have been asked when it was considered in TRA1986... or when it was created in the Revenue Reform act of 1862.

[Daniel]

I wasn't talking about the regressive nature of the tax at all.

My question was, why are we giving an 80 billion dollary subsidy for something that either A) Has no purpose B) Has no effect on its defacto purpose (to increase demand for housing) or C) has a stated purpose that is not in line with our economic needs (Right now, we definitely don't need artificially increased home prices and\or demand for houses, IMO. We are more then welcome to discuss that).

To which you respond:


That being said, should the subsidy be abolished because it does not represent any significant efficiency to the non-luxury housing market? That question should have been asked when it was considered in TRA1986... or when it was created in the Revenue Reform act of 1862.

So, now we can't call into question existing policies and correct or revise them?

I mean fuck, women couldn't vote before, why let them vote now?

[Clove]

I mean fuck, women couldn't vote before, why let them vote now?Ilvane.

[Daniel]

I imagine we can find some other loophole to deny her her right to vote ;)

[Clove]

So, now we can't call into question existing policies and correct or revise them?I think Gan's point is why revisit it? If it hasn't messed up the market in all this time and it was reviewed barely 20 years ago, why is it important to examine now?

[Daniel]

I don't know..


A collapsing housing market? Trillions of dollars in Debt? Fiscal responsibility?

[Keller]

$5 on him blaming the white man keeping the black man down somehow.

Is there a rule of thumb on how many substantive, on-topic posts a thread can accumulate before you drop by?

[Gan]

My question was, why are we giving an 80 billion dollary subsidy for something that either A) Has no purpose B) Has no effect on its defacto purpose (to increase demand for housing) or C) has a stated purpose that is not in line with our economic needs (Right now, we definitely don't need artificially increased home prices and\or demand for houses, IMO. We are more then welcome to discuss that).
Because it allows home owners to increase their disposable income. It rewards home owners who participate in activities that require them to itemize other activity deductions in order not to be taxed unfairly. For those taxpayers who do not itemize, they are allowed the consideration of MID that was estimated in their standard deduction. If you remove the MID for those itemizing then you are penalizing those who itemize expenses that are normally allowed deductions off of yearly federal income taxes. IE it unfairly benefits those who do not itemize for taxes, at the expense of those who do.



So, now we can't call into question existing policies and correct or revise them?
So we cant question efforts to correct existing policies if they are inefficient, unfair, or otherwise socialistically full of shit?


I mean fuck, women couldn't vote before, why let them vote now?
Neither could blacks.

[Clove]

I don't know..


A collapsing housing market? Trillions of dollars in Debt? Fiscal responsibility?Debt and responsibility are good arguments to look at taxes overall. So far no connection between our tax policy and current mortgage default rates has been established.

[Gan]

I don't know..


A collapsing housing market?
As if this has something to do with it? BZZZT! Wrong.



Trillions of dollars in Debt?
Yea, get back to me after we have looked at the war in Iraq, earmark spending, and oh I dont know - maybe an overhaul of the current federal tax structure where lots of loopholes worth more than 80 billion on the corporate side are left wide open. :yes: Ironically enough, the MID was in existance all through the golden years of surplus of the Clinton years. So if its all that bad, how do you explain it not affecting the economy during that time? Surely the housing market would have never recovered from the housing market collapse (S/L collapse circa 1986) much less held constant growth througout the 90's.



Fiscal responsibility?
Yea, that was promised in 2002 and again in 2006. Still waiting.

[Keller]

Yea, get back to me after we have looked at the war in Iraq, earmark spending, and oh I dont know - maybe an overhaul of the current federal tax structure where lots of loopholes worth more than 80 billion on the corporate side are left wide open. :yes:

As a former semi-conservative, welcome to the party comrade!

[Gan]

LOL

I only own one red shirt though... and its a muscle shirt (tank top) whatever you call it.

[Mabus]

and its a muscle shirt (tank top) whatever you call it.
I think they call them "wife beaters".

[Daniel]

I think in this case it would be called "Significant other" beaters.

[Daniel]

Because it allows home owners to increase their disposable income. It rewards home owners who participate in activities that require them to itemize other activity deductions in order not to be taxed unfairly. For those taxpayers who do not itemize, they are allowed the consideration of MID that was estimated in their standard deduction. If you remove the MID for those itemizing then you are penalizing those who itemize expenses that are normally allowed deductions off of yearly federal income taxes. IE it unfairly benefits those who do not itemize for taxes, at the expense of those who do.


I'd say that's a pretty big reason to own a home, now wouldn't you? :)

In either case, I don't think an adjustment of the itemized deduction procedures in either case would be unwarranted if the MID was done away with it. Arguing that everything would remain equal, is a bit naive, IMO.




So we cant question efforts to correct existing policies if they are inefficient, unfair, or otherwise socialistically full of shit?

Of course we can. In fact, I highly suggest that we do. As long as it doesn't turn into a dog and pony show or about something beyond the consequence and benefit of said policies.

Also, I'd like to point out that I don't believe that something being socialistic is inherently a bad idea or even wrong.





Neither could blacks.

I was trying to not give PB any reason to derail the thread by going "OMG U SAID SOMETHING ABOUT BLACK PEOPLE YOU MUST NOT HAVE A JOB!!!11!!! <Picture> :Rofl: <picture>"

Thanks. No really.

[Deathravin]

To further illustrate your hypocracy, I offer you the past 100 days of threads you and I originated:

Daniel’s amazing contribution last 100 days (I'll even double space them to make them look bigger):

1) Parkbandit: Hypocrite and thinks US soldiers are dumb. - A thread that was a pathetic attempt to get even.. which immediately blew up in your face, forcing you to use the “The Internet is serious business” excuse by the 2nd page.

2) This is so motherfucking win – A thread where you linked Youtube videos of the presidential candidates on WWE.

3) The Dregs of Society wasting our taxpayers money. – Taxpayers paying for softball… perhaps your greatest contribution ever.


Now how about mine:

1) Poll: Tuesday Primary Predictions
2) Hillary unable to call McCain out on Economics
3) Gore makes more Green
4) Dean says a Democrat must quit in June
5) Happy Earth Day!
6) Laura Bush on Today
7) Democratic Debate
8) Global Warming - Worse than we thought!
9) Obama: I'd hire Al Gore
10) Hillary Clinton's wealthy pals warn Nancy Pelosi on superdelegates
11) I AGREE WITH HILLARY!
12) Presidential hopefuls are mum on Medicare and Social Security woes
13) McCain aide suspended for this video:
14) A new American.
15) Obama Decries Racial Rhetoric
16) March 4th Primary predictions
17) Democrats: Where to from here?
18) FINALLY! A third party candidate we can back!
19) Dear Mr. Obama..
20) Is Obama "black" enough?
21) Tightening race?
22) Huckleberry Finn's "Fair Tax"
23) There's still fight in the ol' broad!
24) Another way to look at immigration
25) Democrat Debate
26) Can we really afford "Hope" and "Change"?
27) Obama, finally proud!
28) Romney to quit
29) Unchecked immigration sucks for US.


Fantastic contribution.

Insert "The Internet R Serious Business" picture here.

You're right parkbandit...
http://stuff.orly.ch/img/blog/zomg-you-ve-won-internet.gif
The first one to ever do it. Congrats man. What are you going to do first?

[Deathravin]

People take shit so fucking seriously sometimes. Jesus.
You're not going to get a metal. You're not going to be elected president of the world. You won't even be made a super deligate.

You win the ability to piss and moan about more shit for the rest of your life, just like every other American.

[Gan]

I'd say that's a pretty big reason to own a home, now wouldn't you? :)
If I itemized my taxes or owned a home with a mortgage so high I could get more deductions by itemizing over the standard deduction. Of course, if I were that rich, the measly percentage off of deducted interest points wouldnt mean I would miss a meal or anything. So no, I would say its not a big reason to own a home. Its a benefit, but not a reason to own. Especially when compared to rents vs. equity owned which IMO is the primary reason to own a home. ;)



In either case, I don't think an adjustment of the itemized deduction procedures in either case would be unwarranted if the MID was done away with it. Arguing that everything would remain equal, is a bit naive, IMO. Which is why I say if you're going to change the MID you need change other aspects as well.



Of course we can. In fact, I highly suggest that we do. As long as it doesn't turn into a dog and pony show or about something beyond the consequence and benefit of said policies.
If by not turning into a dog and pony show you mean providing statistics and data that represent actual market impacts and proof, then I agree. Which is something that has escaped the claim that the MID 1)caused the housing bubble and the subsequent collapse and 2)artificially inflates the market value to the extent where it artifically inflates demand. (see air causes cancer example)


Also, I'd like to point out that I don't believe that something being socialistic is inherently a bad idea or even wrong.
Socialism is like paprika, a little bit goes a long way.

[Deathravin]

Housing market imploded for one reason and one reason only... Hitler...

[Gan]

People take shit so fucking seriously sometimes. Jesus.
You're not going to get a metal. You're not going to be elected president of the world. You won't even be made a super deligate.

You win the ability to piss and moan about more shit for the rest of your life, just like every other American.

Congratulations on getting sucked into the part of this discussion that has absolutely no meaning to the original post or the subsequent tax discussion persuiant to it. You sir have also won the internet.

:clap:

[Daniel]

If by not turning into a dog and pony show you mean providing statistics and data that represent actual market impacts and proof, then I agree. Which is something that has escaped the claim that the MID 1)caused the housing bubble and the subsequent collapse and 2)artificially inflates the market value to the extent where it artifically inflates demand. (see air causes cancer example)


I don't know. I kinda liked the sources that Keller posted.

[Parkbandit]

Congratulations on getting sucked into the part of this discussion that has absolutely no meaning to the original post or the subsequent tax discussion persuiant to it. You sir have also won the internet.

:clap:

I COULD be wrong.. as I don't read Retardeeze.. but I think Deathravin was talking about the tax policy and the subsequent discussion.

[Deathravin]

Housing bubble was caused by numerous things... by lower interest rates, by the MID, and ultimatly by the Post 9/11 stock market dip.

As I remember it, the stock market slumped, the Fed cut interest rates (and cut and cut and cut) trying to bolster markets. The housing prices started going up because people could afford better and better houses from the lower interest rates. Prices took a huge jump.

The interest rates started to rise back up again, housing prices stayed the same. Nobody wanted to lower their prices. Mortgage companies, bowing to increased pressure by potential customers started coming up with ways people could buy a house (the big three) - interest only, 125%, and (the killer) Variable APR.

People thought they were getting a good deal. Surly their housing price would just continue to rise until their $200,000 house was worth 400,000 like it did between 1996 and 2003, then they could just sell and buy a little house for cash!

Well this ambigous word 'people' gambled and they failed. That's why I've been removed from two rental houses because of forclosure, and also one of the main reasons I haven't bought a house.

Until housing makers, house sellers and banks realize their homes aren't worth quite as much as they think they are, banks will continue to lose money to their own stupidity.

[Gan]

:banghead:

[Clove]

...The interest rates started to rise back up again, housing prices stayed the same. Nobody wanted to lower their prices. Mortgage companies, bowing to increased pressure by potential customers started coming up with ways people could buy a house (the big three) - interest only, 125%, and (the killer) Variable APR...



:banghead::rofl: Yeah, all those potential buyers with good credit ratings were clamoring for those VAR, Interest Only and 125% mortgages. I can't believe I settled for 5.65!!!

[Clove]

Neither could blacks.Off topic. Do you think Hillary will push for a 3/5ths ruling on the African American vote?

[Gan]

Off topic. Do you think Hillary will push for a 3/5ths ruling on the African American vote?

I'm calling Rush now, so he can call Rove, who can send the idea to Hillary's camp.

:lol:

[Parkbandit]

Off topic. Do you think Hillary will push for a 3/5ths ruling on the African American vote?

I wouldn't put it past her.

Do you know the real story behind the 3/5ths of a person?

[Keller]

I wouldn't put it past her.

Do you know the real story behind the 3/5ths of a person?

Someone say no. I'd love to hear his version.

[Daniel]

I wouldn't put it past her.

Do you know the real story behind the 3/5ths of a person?

This should be good.

[Parkbandit]

This should be good.

I'm trolling for ignorance Daniel.. please bite.

Tell me your version.

[Keller]

I'm trolling for ignorance Daniel.. please bite.

Tell me your version.

E-tards love company.

[Parkbandit]

Just for this post I am felating the first man I see tomorrow morning (it's midnight Paris time). I have no gag reflex.

:)

[Parkbandit]

This should be good.

Come on Daniel.. I'm dying to hear your version of 3/5ths.

Just post it up.. no need to do any indepth investigation.

[Parkbandit]

Ah fuck.. I just looked it up and it's available to even the dumbest people to look up. It's on Wikipedia for those who care.

Fucking Daniel ruined it.

Thanks.

[Keller]

:)

Is that supposed to be insulting? I'm not homophobic. While I'm not attracted to men, I don't really mind you including that in your sig and randomly posting it as some sort of insult. Wanna know why? Because the very fact that you think it's going to offend me shows exactly how homophobic you are. Nevermind that the quote was a joke -- you've held on to it for what -- 5 months now?

[Parkbandit]

Just for this post I am felating the first man I see tomorrow morning (it's midnight Paris time). I have no gag reflex.

:)

[Deathravin]

The failure of Vietnamization to win popular support caused an ongoing erosion of confidence in the various American but illegal Saigon regimes. (http://www.youtube.com/watch?v=Xfi4s8cjLFI)

[Clove]

The failure of Vietnamization to win popular support caused an ongoing erosion of confidence in the various American but illegal Saigon regimes. (http://www.youtube.com/watch?v=Xfi4s8cjLFI)Is it me or does this just ooooze Rickroll or Bananamaramaroll or whatever.

[Gan]

Its actually a Sam Kinneson clip from "Back to School" with Rodney Dangerfield.

Sam was an icon. I miss Sam. :(

[Daniel]

Come on Daniel.. I'm dying to hear your version of 3/5ths.

Just post it up.. no need to do any indepth investigation.

Impatient much? Not everyone lives and breaths the players corner. I thought you were about to offer up your own antecdote. I never said I was going to relate the story myself.

[Parkbandit]

Impatient much? Not everyone lives and breaths the players corner. I thought you were about to offer up your own antecdote. I never said I was going to relate the story myself.

You were still online at the time.

But today is a fantastic day to have this discussion. What does 3/5ths mean to you in terms of American History?

[Daniel]

I'm always online, as I leave my computer at home plugged in.

sry

[Parkbandit]

Ok.. so I'll move this to it's own topic so we can get your explanation of 3/5ths.

[Clove]

Ok.. so I'll move this to it's own topic so we can get your explanation of 3/5ths.You serious? This is high school history.

[Parkbandit]

You serious? This is high school history.


Really? Let's get Daniel's version of it before we just think we're all on the same page here. I made a new topic for it.

[Daniel]

:)


:)

(since I can't read your responses.. I'll assume you are just being the typical little bitch you are and responding to one of my posts.. so in some cases, I'll just post this quote so you don't feel like I'm not giving you enough attention. If you weren't being the typical raging asshole you always are.. I'll apologize in advance when those rare occasions when you weren't being the scumbag we all know you are)


OMG NOOOOO! U BLOCKED ME!!!!!! HOW WILL I EVER LIVE WITH MYSELF!!!!111

I was wondering where you went to. I thought you finally took that 'job' of writing for a D&D magazine or became a professional Game Master!

But you blocking me makes me happy.. it's like a badge of honor. I bothered you SO much, that instead of crying and realizing you are one really, pathetic little nerd.. you blocked me. I can see you now.. rocking in your little computer chair.. saying "My mom likes me.. I like me.."

Thanks for cheering me up today man.. I was having a boring day and you just brightened it up.


Oh noes!!

[Keller]

Podcast on the subsidy: http://www.taxfoundation.org/podcast/show/25568.html

Homeownership has come to be viewed as an integral part of The American Dream, and tax policy is just one way that politicians have sought to promote it. The mortgage interest deduction is the second most expensive tax subsidy, second only to the tax exclusion for employer-provided health insurance.

Dennis Ventry (http://www.law.ucdavis.edu/faculty/Ventry/), a law professor at the University of California-Davis, recently authored an article on the mortgage interest deduction in the law journal Law & Contemporary Problems titled "The Accidental Deduction: A History and Critique of the Tax Subsidy for Mortgage Interest (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1498784)." In this week's podcast, Ventry discusses the history of the mortgage interest deduction, its problems and why - despite those problems - it still remains.

[Warriorbird]

http://www.youtube.com/watch?v=XognJRIKXsM

[4a6c1]

good bump

interesting read

[ClydeR]

First, the capital gains exemption should be abolished for all new home purchases. Instead, the base cost of houses should be indexed to inflation so that homeowners are not taxed on inflation gains.

If the goal is to make the tax system neutral toward the own/rent decision, then there is no reason to allow homes -- and only homes -- to have their gains indexed for inflation.



Second, the ceiling (currently $500,000 per taxpayer) on mortgages qualifying for interest deductibility should be gradually lowered to zero over a ten-year period.

He would be more credible if he could state the law correctly.



Such a gradual phase-out can actually help existing middle-class homeowners because it will make top-end homes relatively less affordable compared to mid-market homes that retain the tax subsidy.

If you reduce the ceiling to zero, then mid-market homes will not retain a tax subsidy. No home interest would be deductible.



Third, since everyone needs housing, the Federal government should phase in a refundable housing cost tax credit available to all, regardless of whether they own or rent.

That's socialism!

[Daniel]

:)


:)

(since I can't read your responses.. I'll assume you are just being the typical little bitch you are and responding to one of my posts.. so in some cases, I'll just post this quote so you don't feel like I'm not giving you enough attention. If you weren't being the typical raging asshole you always are.. I'll apologize in advance when those rare occasions when you weren't being the scumbag we all know you are)


OMG NOOOOO! U BLOCKED ME!!!!!! HOW WILL I EVER LIVE WITH MYSELF!!!!111

I was wondering where you went to. I thought you finally took that 'job' of writing for a D&D magazine or became a professional Game Master!

But you blocking me makes me happy.. it's like a badge of honor. I bothered you SO much, that instead of crying and realizing you are one really, pathetic little nerd.. you blocked me. I can see you now.. rocking in your little computer chair.. saying "My mom likes me.. I like me.."

Thanks for cheering me up today man.. I was having a boring day and you just brightened it up.


Oh noes!!

Oh noes!!

hahahahahahahahahahhaahahhahahaha

I forgot all about this.

[Gan]

http://www.youtube.com/watch?v=XognJRIKXsM

This video is not available in your country due to copyright restrictions.

:clap:

[Rocktar]

Why don't we provide similar incentives for incuring debt to purchase other assets that provide security to families?

There are no other items that families purchase that even remotely qualify as "assets" much less that provide security to a family. For most, the home doesn't even qualify as an asset either in the terms laid forth in the book "Rich Dad, Poor Dad" where an asset is something that generates income above cost. Everything else is simply a liability until you sell it and then it no longer qualifies as something that provides stability.

In addition, I disagree with the author's comment about how a tax break "costs" the treasury anything. It isn't the treasury's money, they don't have any right to it or authorization to take it until the Congress grants them such. Thus, since they don't have the right to it under law, it doesn't "cost" them anything. It is not lost revenue, it is not a cost, it is simply something they have no right to in the first place. Such thinking clearly illustrates the idiotic entitlement mindset of Socialist government in action.

[Daniel]

There are no other items that families purchase that even remotely qualify as "assets" much less that provide security to a family. For most, the home doesn't even qualify as an asset either in the terms laid forth in the book "Rich Dad, Poor Dad" where an asset is something that generates income above cost. Everything else is simply a liability until you sell it and then it no longer qualifies as something that provides stability.

In addition, I disagree with the author's comment about how a tax break "costs" the treasury anything. It isn't the treasury's money, they don't have any right to it or authorization to take it until the Congress grants them such. Thus, since they don't have the right to it under law, it doesn't "cost" them anything. It is not lost revenue, it is not a cost, it is simply something they have no right to in the first place. Such thinking clearly illustrates the idiotic entitlement mindset of Socialist government in action.


You could have just saved yourself the trouble and just said you don't understand how tax deductions work.

[Sean of the Thread]

Seriously Daniel other than the awesome pick on Canada shirt that avatar has to go.

Rob looks like a little girl and you look like you're enjoying it.

[Rocktar]

I think a much more important factor is that they can convert income (buying and selling real estate) which SHOULDN'T even be considered capital gains, imo (as they should be considered dealers in real estate if they sell their principle residence more then 3 times in a 10-yr span w/o reasonable cause) into non-taxable gain.

What would be reasonable cause? Why not make it a 20 year span, or 30? You are picking random numbers out of your ass to try and limit people to what YOU think is a reasonable idea and so on. Based on how the economy is going, I would suggest that your thinking is dated and outmoded. In an economy where you are likely to hold 20+ jobs/careers in a lifetime, you could well be moving a LOT. I know if I had the cash and was moving, I would buy a home instead of rent in order to garner some of the GAINS in CAPITOL due to appreciation of the value of what I bought.

I recommend this to give you some idea of what I am talking about.

http://www.youtube.com/watch?v=W9MW2j6suiM&feature=rec-fresh+div-r-2-HM

[Daniel]

Seriously Daniel other than the awesome pick on Canada shirt that avatar has to go.

Rob looks like a little girl and you look like you're enjoying it.


Happy?

Cougar hunting time!!!

[Sean of the Thread]

I prefer milfs/cougars actually.

I just end up fucking entirely too young women.

[Rocktar]

Which brings us to the "Why have a 80 billion dollar subsidy if it doesn't do anything" point I made.

NOT A FUCKING SUBSIDY! It is a tax break to incentivize something. Which, most agree that it does, but to what degree can't be really determined. Just like it effects prices, but likely not in a substantial way. A subsidy involves actual payment of funds for doing something like where the Fed pays for low income housing.

This "government is entitled to x money" thinking is simply mush headed Socialism.

[Rocktar]

I don't know..


A collapsing housing market? Trillions of dollars in Debt? Fiscal responsibility?

You are fucking joking, right?!?! You like Obama, a tax and spend Socialist who has out debted Bush Jr in one year and if it continues, in something like 4 will have out debted all other Presidents in the history of the country combined and now you want to talk about Fiscal Responsibility?

LOLZ

[Sean of the Thread]

Enjoy.

New Obama plans: 'spend our way out' of downturn



http://www.ajc.com/business/new-obama-plans-spend-231931.html


The spending is really getting out of hand hasn't it?

[Rocktar]

Ironically enough, the MID was in existance all through the golden years of surplus of the Clinton years.

BZZZZZZZZZZZTTTT!

Wrong, no surplus in the Clinton years, only a trick of accounting that raped SS and will seriously fuck us in the years to come.

[Rocktar]

You could have just saved yourself the trouble and just said you don't understand how tax deductions work.

Do you ever contribute anything of any substantive value to humanity other than comic relief? The only think I got out of your input in this thread was that you are a moron and you and PB hate each other and that you really have no clue about real life. OH, and you are an evil person because you leave your computer on at home causing unneeded greenhouse gas creation due to wasted power.

[Keller]

There are no other items that families purchase that even remotely qualify as "assets" much less that provide security to a family. For most, the home doesn't even qualify as an asset either in the terms laid forth in the book "Rich Dad, Poor Dad" where an asset is something that generates income above cost. Everything else is simply a liability until you sell it and then it no longer qualifies as something that provides stability.

Notwithstanding the fact that I've not read that book (and withstanding the fact that I bet you've not, either), you're confused.

Why would you (or the author of that book) create their own definition of the word "asset"? An asset is an item of value. It does not have to generate income to be an asset.

But, let's take your silly definition of an "asset" and deal with the rest of your nonsense.

Do families purchase stocks? Do stocks produce income? Is it patently false (or dangerously retarded) to claim that
There are no other items that families purchase that even remotely qualify as "assets"?

Day by day, how do you continue to get even more stupid?


In addition, I disagree with the author's comment about how a tax break "costs" the treasury anything. It isn't the treasury's money, they don't have any right to it or authorization to take it until the Congress grants them such. Thus, since they don't have the right to it under law, it doesn't "cost" them anything. It is not lost revenue, it is not a cost, it is simply something they have no right to in the first place. Such thinking clearly illustrates the idiotic entitlement mindset of Socialist government in action.

The Treasury has, by grant from Congress, the right to X% of a person's income from whatever source derived. At precisely that point, the Treasury has a right to that money. It is the Treasury's money. When Congress provided a special deduction for the amount of mortgage interest paid by a person, thereby reducing that person's taxable income, the Treasury has less money. Therefore, the Treasury lost money. So it is true, in fact, that a tax break causes the Treasury to lose money, just as a tax increase causes the Treasury to gain money.

[Keller]

NOT A FUCKING SUBSIDY! It is a tax break to incentivize something. Which, most agree that it does, but to what degree can't be really determined. Just like it effects prices, but likely not in a substantial way. A subsidy involves actual payment of funds for doing something like where the Fed pays for low income housing.

This "government is entitled to x money" thinking is simply mush headed Socialism.

Maybe it's not in your self-help books, but if you pick up your kids high school econ book I promise you'll learn about indirect subsidies. You probably should.

[Keller]

What would be reasonable cause? Why not make it a 20 year span, or 30? You are picking random numbers out of your ass to try and limit people to what YOU think is a reasonable idea and so on. Based on how the economy is going, I would suggest that your thinking is dated and outmoded. In an economy where you are likely to hold 20+ jobs/careers in a lifetime, you could well be moving a LOT. I know if I had the cash and was moving, I would buy a home instead of rent in order to garner some of the GAINS in CAPITOL due to appreciation of the value of what I bought.

Reasonable cause would involving moving for employment. But not moving to buy/fix a new house. The point is that you don't want to disadvantage other forms of commerce by extending capital gain treatment to what would be considered inventory in any other enterprise. Taxes already produce inefficient markets, if we're going to have them, we need to be sure they are applied and enforced uniformly so as not to artificially incentivize one marketplace over another.

And I would hope that you'd consider transaction costs, upkeep costs, etc in determining whether you would buy a house if you plan on moving soon.

And it is capital, just fyi.

[Clove]

I still can't believe Keller agrees with a paper that thinks we ought to encourage renting so labor markets can be more flexible.

[Keller]

I don't think we should subsidize the cost of home ownership, thereby incentivizing that marketplace.

Not sure where you got the rest of my beliefs from.

[Clove]

I don't think we should subsidize the cost of home ownership, thereby incentivizing that marketplace.

Not sure where you got the rest of my beliefs from.Why? Maybe we should drop farm subsidies or for that matter any other market subsidy?

At the social level, higher house prices mean both spouses have to work, which undermines family structure. It also puts downward pressure on wages by increasing labor supply. However, the system gives every family an incentive to buy a house to lock-in ownership, even though the system may make them collectively worse off.

[Keller]

Why? Maybe we should drop farm subsidies or for that matter any other market subsidy?

Can you not distinguish between the policy for farm and home-ownership subsidies?

[Clove]

Can you not distinguish between the policy for farm and home-ownership subsidies?Yes. They're both good things to encourage, hence the subsidy.

[Keller]

Yes. They're both good things to encourage, hence the subsidy.

You're smart enough to know what "distinguish" means.

[Celephais]

Well, to be fair, you did say "not" before distinguish.

[Clove]

When you're willing to get rid of all market-affecting subsidies then you can use "it affects the market" as an excuse. In reality studies suggest that removing the deduction would have little to no effect on home ownership rates. I suspect your principle criticism is that you dislike of any regressive tax. Boo hoo.

[Daniel]

I suspect your principle criticism is that you dislike of any regressive tax. Boo hoo.

If you changed regressive to progressive in this system you'd have methais in here bitching about socialism.

[Rocktar]

Notwithstanding the fact that I've not read that book (and withstanding the fact that I bet you've not, either), you're confused.

Nope, not confused at all, but you keep drinking the kool-aid.


Why would you (or the author of that book) create their own definition of the word "asset"? An asset is an item of value. It does not have to generate income to be an asset.

But, let's take your silly definition of an "asset" and deal with the rest of your nonsense.

As he explains it, he uses this definition to clarify what is and is not an asset in the quest to build real wealth because too many people get caught up in the idea that X is an asset because it has some supposed value and the mere act of owning it builds value. Things like a house for example. However, all along the "asset" costs you money. You pay interest on the loan to buy it, maintenance costs, there is some appreciation, however when you take away inflation, the loan interest, upkeep expenses and so on, most houses don't make you any money. This is why he chooses to use his own definition for asset and why I do too.


Do families purchase stocks? Do stocks produce income? Is it patently false (or dangerously retarded) to claim that ?

Some do, and then they may be called assets, some do not, and therefore are not assets and become liabilities. Seems pretty simple, and for a guy that is worth many hundreds of millions of dollars, a best selling author, a hugely popular philanthropist and in general, a pretty decent guy, I think I will take his definition over yours. That is, of course, until you meet a couple of those standards yourself.



Day by day, how do you continue to get even more stupid?

How do you remain so completely oblivious to your failings in life and society while so many here generously spend copious amounts of time attempting to raise you up out of the black hole of liberal stupidity and into the real world? Oh, I forgot, you are a lawyer or a lawyer wanabe, you thrive in the dark recesses of humanity rolling in shit.


The Treasury has, by grant from Congress, the right to X% of a person's income from whatever source derived. At precisely that point, the Treasury has a right to that money. It is the Treasury's money. When Congress provided a special deduction for the amount of mortgage interest paid by a person, thereby reducing that person's taxable income, the Treasury has less money. Therefore, the Treasury lost money. So it is true, in fact, that a tax break causes the Treasury to lose money, just as a tax increase causes the Treasury to gain money.

Unfortunately, your feeble attempt at logic is incorrect. While the Treasury has the right to X amount of money as laid out by Congress, Congress also said that under certain circumstances, you only have the right to X amount - this deduction if the payer meets these qualifications. Thus, the moment the tax payer meets the qualifications, the Treasury no longer has the right to that money. It is NO LONGER their money. They no longer have the right to take it, it is NOT THEIRS.

You cannot "loose" what is not yours in the first place. This is the same poor reasoning that my coworkers use to get upset that they don't get a "bonus" because they earned it, it is their money. Well, if the standards aren't reached to get the bonus, then no, you don't get it and it is not yours. You didn't "loose" your bonus, you simply didn't get one in the first place. You cannot loose what you do not have to start with.

Now, I know it is hard, but I know if you try, you can manage to understand this, it is very simple logic. Even for a jurist or jurist in training.

[Keller]

A jurist is a judge. I am an attorney.

You have capital, not capitol.

You lose something, not loose it.

I'll get to the rest after my 9:30 call.

[crb]

Excellent blog about the inefficiencies in the housing market caused by politically motivated tax incentives. (I'm not biased or anything :) )

---------------------------------------------------------------

Tax Policy and the House Price Bubble

The bursting of the recent house price bubble has focused attention on the failures of monetary and regulatory policy. However, tax policy also likely played a role by providing tax subsidies that contribute to a cult of home ownership. This policy is flawed. However, it is politically difficult to change because households see the benefits of tax subsidies and higher house prices but do not recognize the accompanying costs. By showing the downside of high prices, the housing bust provides an opportunity to escape this political trap.

Current tax law exempts capital gains on private homes up to $500,000 and treats mortgage interest as a deduction. Both measures are intended to help middle-class families, yet the reality is they distort the economy, are costly, and likely do little to make working families better off. That speaks for changing housing’s tax treatment.

The mortgage interest deduction is extremely expensive, costing the Treasury approximately eighty billion dollars in 2007. Moreover, it is highly regressive because high-income taxpayers get to deduct their interest payments at top marginal tax rates, whereas others deduct at lower tax rates. That means high-income taxpayers get a higher subsidy rate, and their subsidy is further increased because they also tend to have larger mortgages. Meanwhile, many poor workers get no housing assistance because they rent and rental expenses are non-deductible.

Both the mortgage interest deduction and housing capital gains exemption encourage home ownership. Mortgage interest deductibility encourages switching from renting to owning, while the capital gains exemption encourages owning housing instead of other forms of wealth.

This tax treatment has increased demand for houses, raising prices. However, higher house prices entail larger mortgages so that households end up with larger gross interest payments that offset much of the interest deduction. Additionally, larger mortgages make households more vulnerable to losses if they have to sell under unfavorable conditions – as is now happening.

Since most households lack capital, higher house prices also make it difficult to come up with down-payments. That has encouraged risky non-traditional mortgages such as zero-down products, and these products are a significant factor in the current housing crisis. Furthermore, these mortgages carry higher interest rates that further offset the benefit of mortgage interest deductibility.

At the social level, higher house prices mean both spouses have to work, which undermines family structure. It also puts downward pressure on wages by increasing labor supply. However, the system gives every family an incentive to buy a house to lock-in ownership, even though the system may make them collectively worse off.

Higher home prices are also very unfair from an inter-generational standpoint. Increasingly, younger workers cannot afford houses, and that promises to undermine the market with those buying last losing most.

Finally, excessive home ownership may increase unemployment. This is because workers become tied down to their homes by attached financial obligations, reducing responsiveness to changing job market conditions.

The tax system has helped create a cult of home ownership, and that cult appears to have been an ingredient in the recent house price bubble. Rather than creating wealth, the tax treatment of housing redistributes wealth inter-generationally and makes households financially vulnerable. That means tax policy should change. Here are some suggestions.

First, the capital gains exemption should be abolished for all new home purchases. Instead, the base cost of houses should be indexed to inflation so that homeowners are not taxed on inflation gains. Existing homeowners should be grand-fathered under current law to discourage selling to protect unrealized gains, which would destabilize the housing market.

Second, the ceiling (currently $500,000 per taxpayer) on mortgages qualifying for interest deductibility should be gradually lowered to zero over a ten-year period. Such a gradual phase-out can actually help existing middle-class homeowners because it will make top-end homes relatively less affordable compared to mid-market homes that retain the tax subsidy. That will shift demand toward the mid-market segment, helping maintain mid-market prices and thereby mitigating the housing slump.

Third, since everyone needs housing, the Federal government should phase in a refundable housing cost tax credit available to all, regardless of whether they own or rent. That credit can be financed with revenues generated by phasing out the mortgage interest deduction. During the transition every taxpayer should have the choice between taking either the available mortgage interest deduction or receiving the housing tax credit.

Current tax treatment of housing is intended to benefit working families, but it actually creates bad outcomes. The reality is current tax law distorts the economy, promotes house price speculation, renders households over-indebted and financially vulnerable, and undermines wages and family structure. There is a better way to help working families afford decent housing, and now is a good time for policy to transition in that direction.

Copyright Thomas I. Palley

Found at: http://www.thomaspalley.com/?p=107

Its true, but it is more a function of our overall tax code, than of these individual sections. There are countless behaviors our tax code encourages or discourages as a form of social engineering from congress. Not to mention countless provisions meant to benefit one particular group or industry, supporters of the politician that created them.

The solution is not more fiddling, removing just the provisions that someone else now disagrees with. The solution is a drastic revolution and movement to a simple flat tax like system.

[Keller]

Its true, but it is more a function of our overall tax code, than of these individual sections. There are countless behaviors our tax code encourages or discourages as a form of social engineering from congress. Not to mention countless provisions meant to benefit one particular group or industry, supporters of the politician that created them.

The solution is not more fiddling, removing just the provisions that someone else now disagrees with. The solution is a drastic revolution and movement to a simple flat tax like system.

I assume that, by "flat tax" you mean a VAT type transfer tax as opposed to an income tax.

While I see the benefit from simplification, the income tax also stated out as a "simple" tax.

It would be very easy to fussy up a transfer tax with policy goals. You have the very same people making laws that have complicated the income tax.

The best part, perhaps, about a transfer tax is that it is self-policing. And I agree that at first it will be simple, which will help taxpayers.

[Parkbandit]

Do you ever contribute anything of any substantive value to humanity other than comic relief? The only think I got out of your input in this thread was that you are a moron and you and PB hate each other and that you really have no clue about real life. OH, and you are an evil person because you leave your computer on at home causing unneeded greenhouse gas creation due to wasted power.

I don't hate Daniel at all actually.

If he weren't black, I bet we would be fantastic friends.


This should be fun...

[Keller]

I don't hate Daniel at all actually.

If he weren't black, I bet we would be fantastic friends.


This should be fun..

But as it is, I'm afraid he'll rape my white daughters, as all black people are known to do.

Even more fun!

[Parkbandit]

Even more fun!

Way to ruin it.

AHOLE.

[crb]

I assume that, by "flat tax" you mean a VAT type transfer tax as opposed to an income tax.

While I see the benefit from simplification, the income tax also stated out as a "simple" tax.

It would be very easy to fussy up a transfer tax with policy goals. You have the very same people making laws that have complicated the income tax.

The best part, perhaps, about a transfer tax is that it is self-policing. And I agree that at first it will be simple, which will help taxpayers.

No, I mean a flat income tax.

Very few deductions, very few credits, just a flat percentage of your income (net for businesses), a flat percentage of your capital gains.

[Keller]

No, I mean a flat income tax.

Very few deductions, very few credits, just a flat percentage of your income (net for businesses), a flat percentage of your capital gains.

So, economically speaking, a regressive tax?

[Suppa Hobbit Mage]

Flat tax has it's own nightmare issues (not saying other taxes don't).

[crb]

So, economically speaking, a regressive tax?

No.. a regressive tax is one which hits lower income people disproportionately more.

A flat tax hits everyone proportionately the same.

25% of 1 million is $250,000.

25% of 100k is $25,000.

If you believe that a flat tax is regressive do you believe that $250,000 is < $25,000?

You can have two brackets if you want, 10% and 25%. But keep it simple.

Of course, tax attorneys and accountants might lose business from a simpler system. They would probably be against it.

[Suppa Hobbit Mage]

What about businesses?
What about tax exempt businesses?
Should a household of six people pay the same "flat" rate as a household of 2?
With the new flat tax you are proposing, who is going to figure out what to charge for things? I.e. item x + sales tax was $7, is it now $6.50? How will everyone switch to no sales tax at once? What governement assistance will be offered to them? lol
Are there limits?
Are there tax excempt classes?
Are there loopholes, exemptions, deductions?
Are gifts taxed? Flat tax theory is that taxes are withdraw at time of earning the revenue, not at point of sale of something.
What about existing wealth already accumulated? If I have 100m in the bank, do I have to pay taxes on that, or just the interest, or...

Flat tax is by no means easy or simple. Devil is in the details.

[Keller]

No.. a regressive tax is one which hits lower income people disproportionately more.

A flat tax hits everyone proportionately the same.

25% of 1 million is $250,000.

25% of 100k is $25,000.

If you believe that a flat tax is regressive do you believe that $250,000 is < $25,000?

You can have two brackets if you want, 10% and 25%. But keep it simple.

Of course, tax attorneys and accountants might lose business from a simpler system. They would probably be against it.

Very simply, a flat tax is regressive, economically speaking, because there is declining marginal utility to money.

10% of a million and 10% of 30,000 are not 10% of the utility of each taxpayers income.

[Gan]

Very simply, a flat tax is regressive, economically speaking, because there is declining marginal utility to money.

10% of a million and 10% of 30,000 are not 10% of the utility of each taxpayers income.

QFT

[Daniel]

I don't hate Daniel at all actually.

If he weren't black, I bet we would be fantastic friends.



I know plenty of white people! In fact, just the other day I was having tea with one of my white buddies, talking about soccer and shit like that.

Seriously!

[Gan]

I don't hate Daniel at all actually.

If he weren't black, I bet we would be fantastic friends.


This should be fun...

You're not special until he invites you out to have a beer when he's in your town.

I know I felt special for about a half a second.

[Daniel]

You're not special until he invites you out to have a beer when he's in your town.

I know I felt special for about a half a second.

Oh. I'm sorry. I didn't realize taking the internet so seriously was required around here. Not that your personal hatred for a person you've never met is pathetic or anything.

[Gan]

I really did expect you to confuse hate for not caring to share a beer with someone whom I have basically only two things in common with (like of women and posting on the PC).

I bet you think I hate you because you're black too.

[Daniel]

I really did expect you to confuse hate for not caring to share a beer with someone whom I have basically only two things in common with (like of women and posting on the PC).

I bet you think I hate you because you're black too.

You are from Texas.

[Gan]

There were 2 suppositions I placed on you with the previous post. One of which I have already answered. The other has been made plainly evident throughout my history of posting on the PC.

Its understandable that you woud take the "if you dont agree then you must support slavery" approach though. Predictable in fact. Believe me when I tell you we would have very little to talk about, and my time is quite valuable to me.

[Daniel]

There were 2 suppositions I placed on you with the previous post. One of which I have already answered. The other has been made plainly evident throughout my history of posting on the PC.

Its understandable that you woud take the "if you dont agree then you must support slavery" approach though. Predictable in fact. Believe me when I tell you we would have very little to talk about, and my time is quite valuable to me.

Rofl. Are you upset because I called you pathetic? It's not that serious champ.

[Gan]

LOL @ you thinking I'm upset.

[Keller]

You obviously hold enough of a deep-seeded grudge to bring up an invitation for a drink as though it was wrong to be friendly.

[Warriorbird]

I drink with Republicans relatively frequently. The only people who I'd be rude to offhand would be in the Ratolin/Warclaidhm category. To suggest otherwise means you think the PC is serious business.

http://tijiuanahitsquad.com/pics/leninade.jpg

[Parkbandit]

I drink with Republicans relatively frequently. The only people who I'd be rude to offhand would be in the Ratolin/Warclaidhm category. To suggest otherwise means you think the PC is serious business.

http://tijiuanahitsquad.com/pics/leninade.jpg

Thankfully, Warlclaidhm is a Democrat.. no clue if Ratolin is even smart enough to know what politics is.

[Keller]

The mortgage interest deduction and its impact on homeownership decisions by Christian A. L. Hibber (London School of Economics) and Tracy M. Turner (Kansas State University) (http://personal.lse.ac.uk/hilber/hilber_wp/hilberturnerv024.pdf)

Abstract

This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy across states, over time and due to inter-state moves. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID only boosts homeownership attainment of higher income households in less tightly regulated housing markets. In more restrictive places – typically larger coastal cities – an
adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.

[Clove]

So basically it's saying that the MID isn't an effective incentive to promote home ownership and in certain specific instances creates a negative effect.

Meh. I don't see this as proof the MID had any significant effect on the housing bubble, only that it may be a pointless policy (at worst). Proud of you though, man. Some economists don't like the MID. Keep the faith!

[Keller]

The "negative effect" is that the deduction is capitalized into the price of the home and just makes housing more expensive, not more attainable.

[Clove]

The "negative effect" is that the deduction is capitalized into the price of the home and just makes housing more expensive, not more attainable.Yes in specific conditions, not in general conditions.

[Keller]

http://taxprof.typepad.com/files/130tn1110.pdf

http://taxprof.typepad.com/.a/6a00d8341c4eab53ef014e5fad6012970c-500wi (http://taxprof.typepad.com/.a/6a00d8341c4eab53ef014e5fad6012970c-popup)