Wednesday, March 1, 2017

Budget Speech and Mortgage Tax Deductions

People are tripping over themselves to declare Donald J. Trump newly presidential based on his ability to use a teleprompter last night.  That's kind of hilarious, given the tremendous flack Barack Obama got for using a teleprompter (standard practice) just a few years ago.  Don't get me wrong, the Obama Presidency was riven with very substantial problems, but the complaint about his use of a teleprompter was always high among the whiniest of all whines.  I guess when you speak as well as Barack Obama does, you are held to a higher standard.

Senator Chris Murphy of Connecticut hit the nail on the head:

“Yeah, this wasn’t one of his crazier speeches, but at some point he’s actually got to follow through and do the things he’s talking about ... once again, we’re five weeks in and we don’t even have a whiff of an infrastructure plan from the president.”

Trump again cited $1 trillion as the infrastructure number in his speech, so that's reassuring and I hope that number comes to pass (though there plenty of other concerns regardless of the total sticker price), but as always, the proof is in the pudding.  Can't wait to see the actual budget.

I want to return to this article about tax talk and try to break down some of the tax changes that might be in the wind.  Let's consider for now possible changes to the size of the standard tax deduction for homeownership:

Within the real estate industry, for instance, the concern is that a proposal to nearly double the standard deduction would reduce the tax benefits of homeownership people enjoy when they itemize their returns and deduct mortgage interest from their incomes. Reducing the appeal of this benefit, the argument goes, could weaken the housing market.

“The current plan, by raising standard deduction so high, dilutes the importance of the mortgage interest deduction,” said Gerald Howard, chief executive of the National Association of Home Builders. “It really neuters it, so we’re going to try to fix that.”

A reminder: you can either claim the standard deduction on your mortgage or the sum of your itemized deductions: whichever is greater.  Most taxpayers roll with the standard deduction even though they could in fact save money by itemizing.  TurboTax sez: "If the interest you paid on your mortgage is larger than your standard tax deduction, you definitely benefit by itemizing -- and all the rest of your deductible expenses (including real estate taxes, state and local income taxes, and charitable donations) are frosting on the cake."

Basically this would make refinancing your home more difficult and less attractive.  

Now: is this good or bad?  That really depends, doesn't it.  If you want to foster an "ownership society" it's bad.  If you think the "ownership society" is a big part of the reason for the Great Recession (but far, far, far from the only reason), then it's good!  Maybe home ownership should not be an end-goal for the social contract in America.  Maybe the end goal should be keeping individuals and families afloat financially, and promoting home ownership only to the extent it accomplishes that end.  Perhaps permitting people to own multiple residences is a net societal problem whether they've "earned it" or not.  This article about Britain but applies very much to our own country as well:

People get angry about empty housing because of its symbolic simplicity. In Britain, you could solve homelessness overnight by filling every empty house with a homeless individual, and still have properties leftover. ... the move to viewing houses as assets, a predictable investment that lets you turn a profit and offers more return on the pound than a pension, means there’s an incentive for wealthy buyers to invest in bricks and mortar without bothering with tenants.

Indeed. There's more than half a million homeless on a given night in the USA, with a million and a half or more using a homeless shelter at least once a year.  That we should be encouraging the ownership of multiple residences (at the behest of the real estate industry) when this reality exists strikes me as preposterous, unless you value private property above human life - which many do, of course.

Now, to be clear: unlike some topics I've written about here, this is not my area of expertise.  Assuming the standard deduction for real estate is changed - not guaranteed, given the opposition of the lobbying arm of the real estate sector - I couldn't go out on a limb and tell you that, yes, this will be good for society on the whole.  I do think it's striking that a Republican administration is even considering such a change, however, and it's one that bears watching.

Throughout the week I'll try to touch on some of the other tax issues.  For now, I leave you with a vintage three-sentence Dean Baker reality check.

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