18 Oct 10
Originally posted by sh76If there are so many "uncontrolled variables" why do you assume that the mortgage interest deduction is an "enormous incentive"?
You got me on the link (wasn't paying attention to the year, sorry). But even assuming average mortgages of $150k and this interest payments of $9k per year, with other Schedule A deductions (and there are lots of them), it makes sense that most would itemize.
You already conceded earlier that most people with mortgages to itemize. If so, wouldn't the deduct ...[text shortened]... take that statistic seriously until someone does a study that corrects for other variables.
18 Oct 10
Originally posted by no1marauderSo why do you think the mortgage interest deduction exists, no1m?
Plainly, if you're going to be discussing what effects the mortgage tax deduction has on the current housing market (which we weren't BTW), it might be better to use more current numbers on the price of new housing than October 2004 (your link).
The present median price is less than $180,000. (http://www.realestateabc.com/outlook/overal ...[text shortened]... does not make it "not subject to dispute" if the actual evidence is to the contrary.
18 Oct 10
And while we are debating the mortgage interest tax break, let's not forget the capital gains tax break on selling your home -- up to $250,000.
So another excellent reason to buy a home if values are rising...which makes more people buy homes....which pushes values up...until....
POP!
Still think tax policy did not inflate the bubble, no1m?
18 Oct 10
Originally posted by spruce112358How long were those policies in effect, Spruce? Again you are illogically looking for a cause for a change in something that remained stable.
And while we are debating the mortgage interest tax break, let's not forget the capital gains tax break on selling your home -- up to $250,000.
So another excellent reason to buy a home if values are rising...which makes more people buy homes....which pushes values up...until....
POP!
Still think tax policy did not inflate the bubble, no1m?
18 Oct 10
Originally posted by sh76You want studies, I got studies:
You got me on the link (wasn't paying attention to the year, sorry). But even assuming average mortgages of $150k and this interest payments of $9k per year, with other Schedule A deductions (and there are lots of them), it makes sense that most would itemize.
You already conceded earlier that most people with mortgages to itemize. If so, wouldn't the deduct ...[text shortened]... take that statistic seriously until someone does a study that corrects for other variables.
Empirical research has found little evidence that the MID increases homeownership. Glaeser and Shapiro (2003) note that the value of the deduction has risen and fallen by tenfold in the past 50 years while homeownership rates have remained nearly unchanged between 63 and 68 percent. Their formal analysis of time-series data finds no effect of the MID on homeownership rates. Cross-national comparisons in Gale, Gruber, and Stephens-Davidowitz (2007) also conclude that the mortgage interest deduction is not correlated with higher homeownership rates. Gale (1997) finds that, similar to the U.S. experience, changes in the value of the MID in the United Kingdom are not associated with changes in the homeownership rate. Mann (2000) compares homeownership rates and mortgage interest tax treatment across ten countries and also finds no consistent relationship between homeownership and the interest deduction.
http://www.taxpolicycenter.org/uploadedpdf/412099-mortgage-deduction-reform.pdf
18 Oct 10
Originally posted by no1marauder1997 was when that exclusion went into effect. And if you look at the Case-Shiller index, that was exactly the time when house prices started to rise exponentially.
How long were those policies in effect, Spruce? Again you are illogically looking for a cause for a change in something that remained stable.
Smoking gun, eh?
18 Oct 10
Originally posted by no1marauderYeah, well, that's the kicker isn't it? The policy was supposed to increase home ownership -- but as more people started buying homes, prices went up -- which stopped the whole thing in its tracks.
You want studies, I got studies:
Empirical research has found little evidence that the MID increases homeownership. Glaeser and Shapiro (2003) note that the value of the deduction has risen and fallen by tenfold in the past 50 years while homeownership rates have remained nearly unchanged between 63 and 68 percent. Their formal analysi ...[text shortened]... st deduction.
http://www.taxpolicycenter.org/uploadedpdf/412099-mortgage-deduction-reform.pdf
Government just ain't so bright on certain things.
18 Oct 10
Originally posted by spruce112358Median housing prices rose about 18% for the entire decade of the 90's. http://www.census.gov/hhes/www/housing/census/historic/values.html
1997 was when that exclusion went into effect. And if you look at the Case-Shiller index, that was exactly the time when house prices started to rise exponentially.
Smoking gun, eh?
That's well within historical levels and certainly not an "exponential" rise.
18 Oct 10
Originally posted by spruce112358That this technical change caused the housing bubble is extremely unlikely:
1997 was when that exclusion went into effect. And if you look at the Case-Shiller index, that was exactly the time when house prices started to rise exponentially.
Smoking gun, eh?
Let’s recap what the 1997 law did. Pre-1997, homeowners who sold a home and purchased a more expensive one could defer capital gains tax indefinitely. Homeowners age 55 and over who sold a home qualified for a one-time exemption on gains up to $125,000. Homeowners who died in their homes were forgiven capital gains tax altogether (as they were on all other assets because of so-called “step-up in basis”—the provision that spares heirs tax on capital gains earned by decedents).
The consequence of this law is that, before 1997, almost nobody paid capital gains tax on homes. Sally Wallace, David Weiner and I found that in 1993, of $50.5 billion of gains reported on home sales, $48 billion was exempt from tax either because of the rollover provision ($30 billion) or the special break for older owners ($18 billion). We also found that, while the tax collected almost no revenue, it created significant distortions. Look at this chart showing a 20 point increase in the percentage of homeowners who switch to renting when they turned age 55 (and qualified for the gains tax break).
So the old law discouraged down-sizing or renting, especially for those under age 55. That is, they consumed too much housing. How does eliminating that distortion inflate housing prices???
Another revealing measure is to compare tax expenditures on housing capital gains before and after the tax change. In 1996, the JCT estimated that the rollover provision would reduce tax revenues by $18.8 billion in 1998 and the special tax break for taxpayers age 55 and over would be worth $5.1 billion. In 1997, JCT estimated that the tax expenditure for the new provision would be $5.6 billion in 1998. In other words, the tax subsidy for owner-occupied housing declined by $18 billion. And that inflated the bubble?
http://taxvox.taxpolicycenter.org/blog/_archives/2008/12/22/4031629.html
18 Oct 10
Originally posted by no1marauderYou didn't look at the Case-Shiller graph, did you?
Median housing prices rose about 18% for the entire decade of the 90's. http://www.census.gov/hhes/www/housing/census/historic/values.html
That's well within historical levels and certainly not an "exponential" rise.
18 Oct 10
Originally posted by spruce112358Actually not:
Yeah, well, that's the kicker isn't it? The policy was supposed to increase home ownership -- but as more people started buying homes, prices went up -- which stopped the whole thing in its tracks.
Government just ain't so bright on certain things.
The first modern federal income tax was created in 1894. Interest — all forms of interest — was deductible; the Supreme Court, however, quickly ruled that the tax was unconstitutional. In 1913, the Constitution was amended and a new income tax was enacted. Once again, interest was deductible.
There is no evidence, however, that Congress thought much about this provision. It certainly wasn\'t thinking of the interest deduction as a stepping-stone to middle-class homeownership, because the tax excluded the first $3,000 (or for married couples, $4,000) of income; less than 1 percent of the population earned more than that. The people paying taxes — Andrew Carnegie and such — did not need the deduction to afford their homes or their yachts.
There is another reason Congress could not have had homeownership in mind. The great majority of people who owned a home did not have a mortgage. The exceptions were farmers. But most folks bought their homes with cash; they had no mortgage interest to deduct.
When Congress made interest deductible, it was probably thinking of business interest. Just as today, the aim was to tax a business\'s profits after expenses had been netted out, and interest was an expense like any other. In a nation of small proprietors, basically all interest looked like business interest. Whether it was interest on a farm mortgage, or interest on a loan to purchase a tractor, or interest charged to a general store that purchased its inventory on credit, it all would have looked like a business expense. Credit cards did not exist. So Congress just said, \"Deduct it.\"
It was not until the 1920\'s and the spread of the automobile that home mortgages outnumbered farm mortgages. In the 1930\'s, the mortgage industry got a huge assist from the feds — not from the tax deduction, but from agencies like the Federal Housing Administration, which insured 30-year loans, and, over time, the newly created Federal National Mortgage Association, or Fannie Mae. Before then, the corner bank would issue a mortgage and wait for the homeowner to pay them back; now savings and loans could replenish their capital by selling their mortgages to Fannie Mae — meaning they could turn around and issue a new mortgage to someone else
http://www.taxfoundation.org/blog/show/1382.html
It's been retained because it's a sizable tax giveaway to the upper-middle and wealthy and they are the ones who wield political power.