The Obama budget announced this week – in the middle of biggest housing crisis since the Great Depression – seeks to raise tax revenue by removing the mortgage interest tax deduction for those that are in the 33% and 35% income tax brackets.
What? You’ve got to be kidding, right?
I can’t count the ways this is bad for housing. The one big reason renters all across this country make the decision to become home owners is the extra incentive the tax code gives them. Sure they have the, “I can paint the walls any time I want without getting permission from anyone” reason, but that is no where near as motivating as $1,000’s they get via the deduction every year.
Obama limiting this to the “wealthy” may think he’s not hurting those home owners in the lower tax brackets, but he’d be wrong. The housing market is a connected market. In other words, what hurts home values at the top eventually spreads lower depressing all home values.
Aren’t home values depressed enough?
Another big problem with this proposal is that those “wealthy” folks buy homes in the areas of the country still getting ravaged by massive foreclosures. Places like Arizona, California, New York, and Florida need this like they need a hole in the head.
These States are still reeling from a glut of homes due to the foreclosure crisis. Many of which are of the “luxury home” variety. I guess Obama forgot that only the rich can afford a luxury home.
Don’t get me wrong, I’m not crying for the rich. I’m crying for the housing recovery. Choking it off before we even get started is just plain dumb.
So Obama and his removal of the mortgage interest deduction wins my “Dumbest Idea of the Week” award.
Can’t wait for next week!
Good Luck!
Photo Credit: SEIU International
Article Author:
Rob K. BlakeRob K. has written 49 articles for us.
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Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog, TheMortgageInsider.net, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.
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What are they thinking, Rob?
This coupled with the inability to write off charitable donations and other hair-brained schemes are going to just backfire, I’m afraid.
The wealthy, more than anyone else, will change their behavior based on taxes. If passed, this will backfire in a big way.
Hmmm, this does seem like the wrong move at this point in time. The effect on the individual doesn’t sound promising — I wonder what the long term effects will be. *sigh*
The Obama proposal is not “removing the mortgage interest tax deduction for those that are in the 33% and 35% income tax brackets” but rather it is to limit the income tax deduction to the amount it would be if the taxpayer were in the 28% bracket. In other words, high-income taxpayers would no longer get to deduct a higher dollar amount of mortgage interest just because they are in a higher income bracket.
That’s what I understand as well, like what Stanley said, is that the upper tax bracket mortgage deduction is going to be limited, not erased. In essence, it really shouldn’t hurt the high earners that much. Besides, this actually would be a return to an old policy, until it was revised in 2001 and this new itemized deduction rule went into effect 2006.
My next blog post (probably due Saturday) is going to look at the general economic direction of the Obama admin. It is a direction that will be good for some, bad for others, as is always true of economic policy. However, for one class – US (entrepreneurial investors) – it is really going to be bad. Buckle up.
This is a great idea, real estate is not a route to wealth its a place to live. Real estate should be heavily regulated after its role in getting us all in to this mess. The excessive speculation, backed up by tax advantages have contributed to an extravagant binge on debt.
I have to say I disgree with you Rob. I don’t think the mortgage interest deduction is an incentive to home ownership. I think that the mortgage interest deduction gives an incentive to those who will already buy a home to buy a bigger one. A majority of the time that I do a loan for someone–they rarely ask what their after tax cost is–they want to know if they can afford the monthly payment. If the answer is no, they don’t buy. Those who the deduction was designed to help–mainly the middle class and lower middle class–don’t itemize–they take the standard deduction. Besides–Obama is only proposing that the deduction be phased out after the 28% tax bracket which affects those who make over $208,850 and file jointly.
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Wayne, I beg to differ with you; you are absolutely clueless in your statement that “real estate is not a route to wealth it’s a place to live”. If that’s the case then we should all just live in government owned apartments. Furthermore, it is not real estate investing that has brought the country to the “mess”. It is the fact that banks were forced by big government to make bad loans. Honest people pay back their real estate loans. I benefit greatly from my mortgage deduction and I pay back my loans without help from the government. WE DO NOT NEED MORE REGULATION in real estate.
That’s right, Obama making another move to punish the rich, the people who invest in real estate and provide housing for those who can not buy. Typical Liberal who can’t understand that for every action there will be a reaction. Look for less investors in the market, which means less affordable housing, which means the return of government housing and slums.
I think it is a bad move as well. Particularly at this time when they are trying to rev up the economy. The administration should not give incentives to buy houses on one hand and then limit it on the other. It doesn’t make much sense and makes him look like he doesn’t know what he is doing.
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Boy oh boy…Barry Obama has got to be one of the stupidest people walking the planet. Either that or he genuinely hates this country as he basically states in his book..that apparently none of the brain dead that voted for him read!
The mortgage interest deduction is a subsidy to the banks and nothing more. By perpetuating this garbage, you are convincing people to not pay off their mortgages which is the wrong decision for many people.
agree this is truly a bad idea. what about the two working parent families with kids living in new york or new jersey where the cost of living is much higher. people that have bought houses which may already be underwater are now going to be forced to pay more in taxes for owning the home. changing the rules after the game has started seems unfair but hey lets just keep giving the money to car companies and banks and keep mortgaging our children’s future too……good start
INSANITY!
I disagree Rob only if you had more knowledge as in to real estate you would understand more this issue is best to get more in to research on this before making a statement or opinion. I do agree with Steve Heideman.