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View Diary: Robert Reich Gets It Right (171 comments)

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  •  Limiting/Eliminating Mortgage Interest (0+ / 0-)

    as a stand alone policy is mis-guided. The biggest revenue-raising proposal from the Obama camp (in the Jobs Bill last year) -- ~ $400 billion -- has been instead to impose a cap at say 28 percent for all itemized deductions and some income exclusions (such as the exclusion for interest received on municipal bonds)  for individuals earning more than $200,000 a year and married couples earning more than $250,000  - and thereby limit deductibility.

    It is an oversimplification to say that availability of a mortgage interest deduction causes owners to borrow more for home ownership and thereby deplete the treasury.  However, that ignores the fact that the mortgage payment also produces income for the lender, who should owe taxes on the interest.

    In theory, home-mortgage borrowing could even add revenue to the Treasury if lenders are collectively in a higher marginal tax brackets than borrowers (or if the borrower is not itemizing her tax deductions), although, to be sure, a lot of the mortgages are securitized and held by pension funds, insurers, mutual funds owned in 401-k's, and others who pay no immediate tax.

    Nevertheless, I think just restricting /eliminating the deduction accomplishes little in the long-run.

    Landlords also take out mortgages on their properties and deduct the interest payments which, in turn, affects the rent set. Consequently, the opportunity of deducting mortgage-interest does not in and of itself disfavor renting rather than owning.

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