Dingell Proposes Elimination of Mortgage Interest Deduction for Houses > 3000 Sq Ft

“To properly address climate change”, natch.

Link here:

Does anyone think this is a good idea?

Yeah, off the top of my head I think it’s a good idea.

In fact, if I were rewriting the tax code from scratch, I’d eliminate the mortgage interest rate deduction altogether. It’s a sprawl subsidy, resulting in the shift of billions of dollars away from factories and nonresidential investment and towards housing. Studies have shown that it’s not particularly progressive either (in the technical sense).

However.

Eliminating the tax deduction altogether would lead to housing price declines. Since a lot of people have a good portion of their savings wrapped up in their house, this would be a bad thing. So a very long phase-out would be appropriate.

A long phase-out wouldn’t have much political support, since the revenue benefits would accrue to future politicians. So in practice, I think this idea is a nonstarter.

Dingle is a big defender of auto companies: he is Detroit’s representative. This anti- McMansion initiative isn’t going anywhere, but it provides a useful distraction.

Heh:

Hmmmm.

I like my taxes neat and clean-- no deductions. But there’s nothing magical about the 3,000 sq ft number, and this looks like a cheap shot at “the rich”. The better way to address ACC* is tax greenhouse gas emissions directly, at the source, so as to reflect the true cost to society (or as much as we’re able to do that).

I give this measure a snowball’s chance in hell of passing. Or maybe a snowball’s chance anywhere on earth once ACC really kicks in.

*Anthropogenic Climate Change

Exactly. “…terminating mortgage interest deductions for all single-family dwellings larger than 3,000 square feet would result in a national median house price decline of 4 percent–on all homes, not just large ones.”

Of course, such a price decline would lead to even more housing foreclosures in an already unstable market.

Dingell’s proposl is a very bad idea.

Agreed, but let me quibble. It’s not a cheap shot, it’s just a tax increase on the rich.

Nothing wrong with that per se. Arguably, federal housing subsidies should be limited to middle and lower income groups.

If this measure passes, look forward to a) a greater number of 2999 sq ft houses and b) more adjoining “guest houses” and other such nonsense.

…according to the National Association of Realtors, a [rather powerful] tradegroup.

Nonetheless, I would submit that a serious economic analysis should be conducted before this bill leaves committee.

I trust Dingle would agree, except that he’d want to study everything for as long as possible.

Yes and no. I wouldn’t have a problem limiting the tax deduction to the less well off, but only if it were phased in very slowly. Since most people get 30 year mortgages, the phase in should be on that order of time. Who knows what would happen to the economy if it were put in place too quickly. And I wouldn’t tie it to the size of the house, but rather phase out the mortgage deduction as your income exceeds a certain amount.

Here’s a more serious proposal though.

Currently the mortgage tax deduction is skewed towards higher income groups. One way of addressing this would be to convert the deduction into a 15% mortgage tax credit, with the total credit capped by some amount. There’s no reason for the IRS to start measuring floor sizes.

LOL: Cross post! Heck, I’d phase it in over 60 years, allowing for hyperbole. Maybe start with an unlimited tax credit, and have the cap ratchet downwards over time.

Oh, and make it a constitutional amendment, so that the Realtor and homebuilder lobby won’t revisit the issue.

… Snort. Hey, Dingle’s proposal won’t go anywhere either.

What’s confusing about this proposal is that duplexes and apartment buildings fight sprawl. If somebody builds an energy efficient 4000 sq ft building near public transit and rents out a few rooms, that could very well reduce greenhouse gas emissions.

Howzabout we squeeze the mansion buying rich, and divert the money towards the working poor in trouble with thier mortgages. This will be welcomed by those financial institutions facing the prospect of becoming major landowners against their better judgement. Legislation that meets the approval of major financial interests have a surprisingly robust record in terms of ratification. And though it may very well save the bacon of the undeserving, it will at least save some homes for families.

Cutting it out completely at 3,000 sq ft would be silly, but it would make some sort of sense to phase it out at that point, so that, e.g., a 4,000 sq ft house would just get 75% of the current rebate.

(And a person who rents out some rooms in their house should not be getting the benefit of that part of their house as a resident, but rather should get it as a business expense, which is another matter.)

I think it’s a decent idea, and I’d lower the threshold to something like 2400 feet.

An even better idea would be to reward people for living close to where they work, somehow.

How does that work? If anything, I’d expect the proposed legislation to increase demand for smaller homes.

Howzabout you (generic you) keep your grubby paws off of everybody else’s property? Much as you might like, the United States is not a commune, for heaven’s sake.

If we’re going to use our tax code to subsidize housing, by giving mortgage payers tax breaks, it’s only fair to decide that we’re going to subsidize some kind of housing and not others.

After all, as a renter, I’m already subsidizing the mortgages of people who own their homes. I’m not sure why my home is less worthy than theirs.

Maybe I’m missing a key fact here, but I have to ask. How are renters subsidizing the mortgages of anyone?

But then how would we pay for massage therapists for the gay homeless? Really, Carol, you have to think these things through!

There shouldn’t be a mortgage interest deduction at all. We don’t have them in Canada. All they do is bias home ownership against renting, and bias investment towards mortgages rather than other investments. I have no idea why this is supposed to be a good idea. A much better idea would be to stop using the damned tax code as a way to push people around and micro-manage their choices. Taxes should be used to raise money. Period. Stop using them as an instrument of social manipulation.

One of the reasons the real-estate crunch could be so bad is because real-estate demand is propped up by the mortgage interest deduction. That deduction also pushes people into more expensive homes than they might otherwise buy, and that can’t be healthy. Lots of unintended consquences that no one thought of when they passed that law.

That said, it’s hard to go back from where you are now, without causing further disruptions. The difficulty of getting rid of these laws is a good reason to avoid them in the first place. Even a long-term phaseout is difficult, because real-estate is a durable resource that lasts for decades. If the mortgage interest was to be phased out on >3000 sq ft homes in 30 years, that would depress the value of them today, because the market would discount their future value. They’d be discounted by the net present value of the loss of money 30 years hence, so it wouldn’t be a whole lot of money.

Maybe that’s actually the way to go. Announce that the mortgage interest deduction will be eliminated in 20 or 30 years, and then let the market slowly adjust back to ‘normal’ from where it is now. The net effect would be to gradually lower the cost of housing and slowly divert money into other investments.

Interest expense has always been tax deductible, since the beginning of the US Federal income tax. It was thought that if businesses could deduct interest payments, so should households. But I understand that this wasn’t really the outcome of a public debate: it’s an historical accident.

Years later, the home building/selling lobby doesn’t want to be gelded, though they admittedly took a hit in 1986.

Yeah, I hear that a lot. But taxes are a good way of handling negative externalities (eg pollution), which is a form of social engineering that I know that you (and I) approve of.

Howzabout we tax people on the basis of their income, rather than have harried IRS agents running around with tape measures?