George Bush Wants My Family to be Homeless
We have to admit we’ve been trying our best to block out the news over recent weeks of President Bush’s proposal to do away with the home mortgage deduction–we get a pit in our stomach whenever we think about it. Like many recent purchasers of homes in hot coastal markets (which, by no coincidence are…
We have to admit we’ve been trying our best to block out the news over recent weeks of President Bush’s proposal to do away with the home mortgage deduction–we get a pit in our stomach whenever we think about it. Like many recent purchasers of homes in hot coastal markets (which, by no coincidence are teeming with Liberals), elimination of this tax break would have a fairly drastic effect on our ability to stay in our home.
The pundits are talking about how such a change would bring home values down by 10-20%, but we think they are only taking into consideration the change in demand; in markets like New York, where many people have stretched over recent years to buy a home, the result could be much more dramatic on the supply side, as thousands of families could find themselves in the position of being forced sellers. The definitions of “rich” used to set the minimum hurdle rates for the small deductible portion of a mortgage that would remain are woefully out-of-whack with reality in cities like New York where most people spending $1 million on a home are far from wealthy. The larger impact on the economy–from a decline in real estate tax revenue to population decline–could be devastating under that scenario.
Let’s say someone earning $180,000 a year ($15,000 a month pre-tax, maybe $9,000 a month after) purchased a house at some point in the last few years for $1,250,000, putting down $250,000 and taking a $1 million mortgage. Let’s also say she’d gotten a 6%, 30-year mortgage, making her monthly payment roughly $6,000. For the sake of simplicity, let’s say taxes and maintenance, etc., add up to another $1,000.) Under current rules, her after-tax housing expense would be more like $5,000 than $7,000; the proportions get even more extreme if she has some rental income–maybe $3,500 versus $5,500. The difference in what’s left over to pay for groceries, utilities, tuitions, etc. is $5,500 versus $3,500–huge when you’re talking about a family of 4 or 5.
Now, we don’t think there’s any defensible intellectual reason that home ownership should enjoy the privileged status it does in our tax code, but to change the rules of the game at this point when millions of people have made the largest financial decision of their lives based on one set of ground rules would be a bait-and-switch of monster proportions. Some experts say the chances of these changes getting through are low, but, in the meantime, we’re going to have to go back to living in denial. The alternative is too much of a downer.
Goodbye, My Sweet Deduction [NY Times]
Do I think people should be able to deduct 100% of the interest of their million dollar mortgages? No.
Tax laws change, they always have. Interest on mortgages were not always deductible. If you thought they were a guaranteed thing when you bought your home, you didn’t have great advice. Do I think they’ll change the rules now or in this administration? No. Do I think they will change before your 30 yr mortgage is paid off? Of course! They always change.
Aren’t you hit by the AMT this year making this all moot?
1. People, seriously, if your main argument is to compare having to sell your brownstone and live in a co-op, or a rental, or a smaller house, or a cheaper community, to *being homeless* — you’ve pretty much lost already.
2. As much as this thread is directed at what “Bush” wants to do to us, we should keep in mind this was a bipartisan panel. (One that Bush did charge, granted, to make “pro-growth” recommendations, but also one he directed to promote home ownership.) The Bush administration will take the recommendations and then do what it wants with them. For all I know, its proposals will be even worse for blue-staters, but we don’t actually know what “Bush” wants to do to Brownstoner’s family yet.
Anon at 11:56, if there had been no deduction when you bought, housing would likely have been cheaper and you wouldn’t have bought something you could barely afford. That is what I think the “pro” argument is in terms of getting rid of the deduction (at least in the future and for the long run) – it will balance things out and make housing more of a balanced cost for people, instead of something that is 50-60% of their monthly costs.
This is designed to screw the blue states, IMHO. If the AMT is the problem, just index it to inflation. Abolishing it so that you can abolish the deduction for state and local taxes (basically owing only in blue states) and the deduction for mortgage amounts inbetween something like $200-300,000 and $1 million (c’mon, people, what’s a typical mortgage for a house in NY or California compared to Kansas?) also hits only the blue states.
Yes, your President wants you homeless, just like he wants the democratic (& black) voters in Louisiana to be homeless. He’s pandering to his 35% base — white Christians who live in red states and think Darwin shouldn’t be taught in the public schools. He doesn’t care if you’re homeless. He really doesn’t.
I am sure this will sound much better in a few years, when everyone is hit with the AMT tax. So the AMT will remove the mortgage, state and local deductions anyway. The reason why they don’t adjust the AMT for inflation, is because it would not be “revenue neutral”.
Frankly I think the loss of state/local tax deductions is more unfair. Some snide Republican said something along the lines that red states with low local taxes shouldn’t subsidize trash pick up for Californians. That would be true if red states paid an equitable portion of federal taxes but by far they take more than they contribute. When they can pay for their own stops signs and traffic lights then they can complain.
If this was really about helping the middle class now being hit by the alternative minimum tax, why don’t they just adjust the AMT for inflation?
1. It would kill me.
2. I’m all for it.
i think a major problem with this proposal is that many of us bought our houses and made financial choices with it in mind. ie i can afford a 4000 dollar mortgage because i will save 800 dollars a month and the savings makes buying a house a worthwhile investment. to change it in midstream can now make your investment a poor choice. i already now i would not have bought the house i’m in without the deduction, if i already know this we can assume there are plenty other people like me. therefore we can also assume it would take me out of the market place and others too decreasing the price of homes. add to this a possible housing bubble or at least slight decrease in the horizon i see a disaster in the making. on top of this in ny you would not be able to deduct state/city taxes, more taxes paid. and on top of this the highest bracket will get a 2% tax decrease while singles at 100k get an increase. as a single isn’t bad enough i subsidize everybodys children already. sorry but the rant but the implications of this are huge and if this goes through it will profoundly affect my life and many others. i am thinking about selling already for i rather put my money elsewhere and go back to renting and i fear i could get stuck where i live now.