Capping SALT deduction: I don’t expect it to result in another great migration or anything.
But it lowers the amount that upper middle class folks are willing to pay to live in the city. It’s going to have a downward impact on property values in the city which reduces the difference in property values and means the city has to raise property taxes on everyone.
And the marriage penalty built into the existing SALT cap is absurd.
I realize this post is several days old, but I’d note that you ignore the fact that there are several charges on your electrical bill that often are not controlled by you. Specifically I’m thinking about the charges for access to the transmission lines, and various infrastructure fees and service fees that get added to the bill. In many cases the charges that you have control over (e.g. consumption of electrical power) are equaled or exceeded by charges you have no control over.
I think the government’s goal should be to make their country a platform for commerce. Make sure transportation is efficient, make sure immigration supplies enough employees, make sure that children have on ramps to become productive laborers, make sure those left behind are not suffering or starving, and offer a national defense that makes sure everyone and their property inside their borders is safe and secure.
The US is currently doing OK with transportation, failing at immigration, gets a 50% on ramping children into the workforce, gets a 50% in caring for those left behind, and gets a good grade on defense.
I think a national health insurance would leave everyone with the care they need to stay healthy and would be a huge boon to commerce and the economy. It would make the US a much more attractive place to immigrate to and a more attractive place to have children along with removing our job from our healthcare which should engage a lot more entrepreneurial spirit.
In education we basically are great at creating potential college students in almost every state. We are really bad at creating workers. For the most part you either go to college or you fail in the US because we do not do a good job ramping people into trades. Some states are OK at this, but others really suck. We need to all be good at this.
Immigration just needs to be better. The quota system is stupid and the big blocker on reform getting passed is what to do with the people already here. Republicans refuse to grant amnesty and Democrats refuse to make them leave so none of the things that really need to change and that there is agreement on even get to be discussed.
Few mortgages last longer than 30 years. I agree that it would be disruptive to just eliminate it one day, but phasing it out over 10 or 20 years would be okay.
Two huge economic wins of national health insurance would be:
Man, for the most conservative regular on our little forum you sound a lot like a moderate globalist washington dc technocrat. I think we need to reach out to reddit and find some more hardcore minarchists before this place becomes nothing paul krugman clones and milton friedman clones.
It has already been eliminated for many middle class families given the SALT cap and increased standard deduction.
MFJ deduction is 24K, SALT cap is 10K, you need 14K in deductible interest before anything matters. With rates near 3%, that won’t come into play until you have a 500K loan. That seems like an amount that is uncommon for a middle class family in all but maybe a few high COL cities.
I think that is why they set the cap at 10k. High COL places (like where I live) lose the deduction. A 10-year phaseout for everyone would have made more sense, but the way it was handled was just a middle finger to blue states.
Sure, the changes were a middle finger to blue voters. I think my point which was not very clear is that under the current system and low interest rate environment, the mortgage interest deductions is not particularly useful and can’t be a huge driver of home prices.
Let’s do some math.
A year ago, the average 30 year fixed mortgage interest rate was about 3.75%. The monthly Principal + Interest payment was $463 per $100,000 loan. The monthly P+I+ RE Tax + HO Insurance might have been $630. In the first year, that monthly payment included about $313 of interest and maybe $104 of RE tax.
Buyers in a 12% marginal tax bracket, who can use the entire amount of the Interest and RE tax deduction, would have tax savings of $50 per month, or about 8% of their monthly payment. I’d say that 8% is the maximum theoretical impact on house prices of losing both the RE tax deduction and the mortgage deduction, for the type house purchased by people in the 12% marginal bracket.
If we do the same math for the 22% marginal bracket, the impact is 15%.
If people use 15 year mortgages instead, the impact is 5% and 9%.
Those are the theoretical maximum impacts. The real impacts are smaller. The median annual earnings of married couples with children might be $110,000. For those couples, the $24,000 standard deduction is significant. Their itemized deductions without the house are likely well below $24,000. If they are buying a $300,000 house, they might be looking at $15,000 of deductible taxes and interest, probably enough to get them over the $24,000 line. But, much of that $15,000 is lost in just getting there. so the impact of the RE tax and mortgage interest deductions is noticeably less than the 8% above.
And, not everybody borrows 100% of the purchase price. We have cash buyers and buyers rolling equity from their last house. They impact market prices.
For comparison, note that house prices should also be impacted by interest rates. Between Oct 2016 and Oct 2018, 30yr mortgage rates went from about 3.50% to 4.75%. The calculation above would have the monthly total payment increasing by 12%. I don’t recall stories about house prices dropping 12% and the resulting hardships experienced by homeowners. I’m sure RE agents could tell us sales slowed and prices went down, but not by that amount.
Then we can ask what hardships arise from falling house prices. For people who aren’t planning to sell, hardly any. Probably a little concern about lost mobility. Many people who do sell are buying a new house. They lose equity, but they gain a lower purchase price. The first is much bigger for recent buyers who are doing horizontal moves. The ratio changes for people who have built up substantial equity and are trading up.
Finally, what happens to the extra tax revenue from eliminating the deduction? Suppose we increase the standard deduction a little and decrease the 22% rate a little. Lots of people benefit from that. It even offsets a little of the losses suffered by the home buyers.
Put this all together, and I don’t see anything that justifies a 50 or 100 year phaseout. House prices vary for reasons other than tax policy. People survive. Maybe it could be phased in over 5 years by putting a decreasing dollar cap on the allowable deduction.
(Yes, I’m considering both the RE tax and the mortgage interest deductions here. The RE tax already has a cap, which decreases the effective impact of the mortgage deduction. Since you don’t like the RE tax cap, I thought I’d include both in the numbers.
I think we’re just going around in circles. I think your “pro” of getting higher income people to live in low-tax-base communities is very small relative to the negatives of the deduction.
If we really care about those low tax base communities, a direct federal subsidy would cost less and do more good.
I’ll say “make sure immigration supplies enough of the right kind of workers”. We’ve already got more unskilled workers than we need.
Lucy… Sounds like twig is exaggerating again, I’ll politely disagree.
Me… Sounds like twig is exaggerating again. Maybe I should say something snarky and zingy befitting the internet.
Indy…Sounds like twig is exaggerating again I’m going to treat this as an exam question, and pretend I have 20 minutes to make as strong a case as possible using bulletproof reasoning and empirical examples constructed around sensible assumptions. I’ll cover every possible material issue I can within the alotted time.
Maybe, I bet restaurants wouldn’t agree.
The right kind of workers = “workers who will work on the cheap.”
I don’t think “the economy” “needs” these workers as much as some individuals need them.
Just remember that the only reason a government concerns itself with 'the economy" is because it wants to get re-elected.
I think you’re correct – restaurant owners wouldn’t agree. Restaurant workers would. I think the workers are correct.
At current wages, too many restaurant workers do not earn enough for a “decent” lifestyle, or to pay enough taxes to cover the gov’t services (largely education and health care) they consume.
I’m not sure I agree. For one thing, I think the high income folks are contributing more than just tax dollars.
Yes, but if you go to sell your house in, say, 4 years and the buyers only have 6 years left to deduct the interest on their 30-year mortgage, that is going to put a massive downward pressure on the value of your home. It’s not just about existing homeowners… it’s about the future homeowners who will buy the houses from the existing homeowners. And the buyers who will buy the house from them…
It will be 2008 all over again where people are going to owe way more than what they can sell their house for and they are trapped.
Very few mortgages are paid off on a 30 year schedule. People pay off the mortgage when they sell their house and move into a different one. Sometimes in a completely different geographic region. If they are underwater on their existing mortgage because property values have fallen that’s bad if it’s on a macro level.
As Indy pointed out, we effectively DID remove that deduction overnight, or most of it. The value of my house didn’t plummet. Interest rates have varied a lot, and I survived the impact in the value of my house. So did most people.
At any rate, there are lots of things that are economically disruptive, and while big, fast disruptions are generally a bad idea, I don’t think “home value” deserves special protection as compared to “walmart moves into town and local economy turns upside down” or “universal health insurance wipes out jobs in processing healthcare payments”.
Well, you will never know what your house would have been worth without the restricted mortgage deduction.