Mortgage interest deduction is not quite as big a hole in the federal budget as previously estimated.
Posted by David Zadareky on Saturday, January 22nd, 2011 at 9:03am.The President's Deficit Reduction Commission gained quite a bit of attention when it targeted the Mortgage Interest Deduction for tax reform.
There are more than a few special interest groups (yours truly included) that oppose the reduction or elimination of this tax deduction. But according to Kenneth Harney:
"here's an intriguing twist that has just emerged on Capitol Hill and that might encourage homeowners, realty agents and builders who oppose any cutbacks in tax benefits. According to new estimates compiled by the nonpartisan Joint Committee on Taxation, Congress's top technical resource on all tax law matters, the mortgage interest deduction is not quite as big a hole in the federal budget as previously estimated.
In fact, it's significantly less - $88 billion less in revenue loss is now projected over the next three fiscal years - than the committee estimated early in 2010. That's big money, even in an era of trillion-dollar deficits. Why the sudden reappraisal of the revenue losses caused by millions of homeowners writing off their mortgage interest?
Start with this: There's less mortgage interest being written off than earlier statistical models anticipated. Home values are down in many parts of the country, and lower purchase prices and far stricter underwriting mean smaller mortgage amounts. Interest rates have hit half-century record lows and have remained at or near those floors for much longer than anyone had estimated.
Thirty-year mortgages at 4 1/2 percent require much less in monthly interest payments than do similar loans at 5 1/2 percent or 6 percent. Millions of homeowners who had been paying even higher rates than that have refinanced in the past year - the combined effect of which has been to reduce the estimated amounts of interest being written off now and for the next couple of years at least. For example, the tax committee predicted last January that tax-revenue losses from mortgage-interest deduction for fiscal 2011 would total almost $120 billion. Now the estimate is $93.8 billion.
.......By the committee's estimates, the homeowner tax benefit will still contribute to the federal deficit. But for a variety of reasons, those costs should be smaller and, in theory, slightly less vulnerable to attack, for the years immediately ahead."
I'm opposed to changes for the MID without comprehensive tax reform to the entire code for one simple reason. Changing the rules during the game is difficult in any situation. People have made calculated decisions about what's best for themselves based on an existing set of rules. When the rules change it has consequences. By removing the MID now, I believe it will trigger a new wave of foreclosures and short sales, especially in the upper income brackets. if you're in CA and you have a $50,000 tax deduction that just becomes eliminated the thought of struggling to meet the mortgage payments just got a lot worse. And if you're in CA, why not just walk away?
if we're going to change the rules, then everything should be on the table and I mean everything. If you want to eliminate all deductions, fine. If you want to eliminate Social Security, fine. If you want to make everyone sign their emails "lol", fine. I don't care, just set the rules for everyone and be done with it.
This constant tinkering has led to a massive tax code that few people understand, and few people can predict.
In my opinion, the tax code should be two things. 1) Predictable and 2) Understandable. This would benefit both the people that PAY the taxes and the people that SPEND the taxes.
So come on Washington, enough with the tinkering. Give us some real reform that will put our economy back on track for the next 100 years.
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