Possible Changes to the Mortgage Interest Tax Deduction
February 28, 2009 by Miranda Marquit
Filed under Finance
For the first time in years, we are getting a tax refund. A big part of the reason is the itemized deduction that comes from mortgage interest paid for an entire year. In light of this fact, it interested to me to learn that changes are on the way for mortgage interest tax deduction for those in the 33% and 35% tax brackets.
New mortgage interest tax deduction policy
As part of his efforts to cut the annual federal deficit in half by 2013, Barack Obama knows he needs to raise revenues. And one way to do this is to pay less in tax returns to some people. (Cooks and Liars doesn’t feel bad at all for those who will get a smaller return in this case.) One of the least painful ways to do this is an interesting proposal to reduce the mortgage interest rate deduction for the top tier by 20%.
The mortgage interest rate deduction is still there for those with larger incomes; it just isn’t as big. CNN Money points this out about what economic-types at the Center for Economic and Policy Research and the Tax Foundation have to say about the policy:
Dean Baker, co-director of the Center for Economic and Policy Research, a D.C. think tank, said he was impressed with this part of the budget plan.
“It’s a no-brainer for economists,” he said. “Why have taxpayers been [in effect] subsidizing home payments for the highest income people in the country?”
The overwhelming majority of low and middle income people take the standardized deduction when they file their taxes [and] they receive no benefit at all from the mortgage interest deduction, said Patrick Fleenor, chief economist for the Tax Foundation.
Even though I enjoyed my tax deduction for mortgage interest, I don’t think I’ll be upset if I get a diminishing amount. After all, if I make it to the 35% bracket, at which point I’d be making more than $357,700 a year, I think I’ll have enough money that 28 cents back (instead of the current 35 cents back) on my mortgage interest dollar is just fine.
I sure hope the government doesn’t plan on making any changes to the mortgage interest rate deduction for the middle class tax payers. This is one of the only reasons to own a home these days.
I don’t think that we have to worry too much about that deduction for the middle class. So far, Obama’s been pretty good about policies that are a little more favorable to the middle class.
The Obama budget proposes to limit all itemized deductions for upper income taxpayers, not just mortgage interest. Think of all of the charities that will pay the price for this tax increase.
As with the mortgage deduction, it’s not like it’s completely gone. It’s just not AS MUCH. At any rate, if charities suffer because of the tax decrease, I think it says more about the people donating.
What the government subsidizes it gets more of and vice versa….. so expect a lower % of home ownership by citizens as well as a dramatic drying up of charitable contributions. Expect to see a number of charities closing their doors or asking for a government bailout.
Nothing our governments do is going to save us now. Our countries are done for. Utterly done for. This is the beginning of the end
I’m not sure I’d say that we’re for sure on the path to destruction. But we will be if something isn’t done. Something that involves rational thinking and policies, as well as a fundamental change in the way we as a society views money. But I agree that our government can’t do it all. We have to make changes, too.
We need to redefine “wealthy” and “middle class”. The cost of living in different parts of the country varies so much, that a broadstroke $250K = non middle class is just not true! In California or New York, for example, home prices are not what they are in other parts of the country, so a family living on 250K may just be getting by after mortgage, property taxes, tuitions (even preschool is $400 a month) – to reduce mortgage deductions by 78%, on top of the other tax increases, would be devestating to many families who are being erroneously labeled non-middle class.
You do make a good point, Busy Mom. $250,000 or $350,000 goes farther in some places than in others. But, by the same token, that more expensive house with greater amounts paid in interest, are still going to yield a bigger deduction. Someone making $357,000 and getting the lowest deduction (28 cents on the dollar) for a $650,000 house will still have a bigger deduction than I have — even though I’d still get the 35 cents on the dollar for my $185,000 house in the 15% tax bracket. The bottom line, though, is that the tax system is not fair, and there really isn’t a way to make it completely fair in terms of addressing income differences and what not. Not even the “Fair” tax or the flat tax really makes things “fair.”