The Home Mortgage Interest Deduction. The home mortgage interest deduction is the largest explicit tax deduction for households in the federal income tax code. Politicians have been reluctant to even consider removing this deduction, believing it to be one that provides significant benefits to middle- class taxpayers and encourages homeownership. These benefits are greatly over- stated: most taxpayers do not benefit from this deduction at all or receive a very small benefit. The only taxpayers who do receive a large benefit are those in the upper income brackets. Taxpayers and the entire economy would be better served by removing the mortgage interest deduction and lowering marginal tax rates to offset the change. The mortgage interest deduction is a tax deduction by which the federal government allows taxpayers who own their homes to lower their taxable income by the amount of interest paid on loans for a principal residence or a second home. As such, the mortgage interest deduction, like other deductions in the tax code, allows taxpayers to subtract the costs of certain items of consumption from their taxable income—thereby providing an implicit subsidy (i. The purpose of such a deduction is usually to encourage activities that result in more future taxable income or to create incentives for taxpayers to participate in certain behaviors that are considered desirable. In the case of the mortgage interest deduction, one of the policy goals is to increase levels of homeownership in the United States. The existence of deductions in the tax code necessitates a trade- off between different government services, providing incentives toward certain behaviors, higher taxes, and perhaps even larger deficits. Mortgage » Mortgage Reduction Techniques; Mortgage Reduction Techniques. Homeowners can achieve an interest-rate reduction in one of two ways. Reduced Income Mortgage Programs. Government mortgage reduction program aims to assist the mortgage payments. The loan is interest-free and is set up as a second. People should be aware of various programs of mortgage reduction 2010 that assist them in. Interest Rate Reduction Refinance Loan page for the VA Loan Guaranty Service. Education Programs Home. By obtaining a lower interest rate, your monthly mortgage payment should decrease. Deficit reduction in the United States. Interest Rate Reduction Refinancing Loans. A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home. You only repay the loan when you die, sell your home. On CitiMortgage.com, you can view your statements, set up auto-pay, see your mortgage details, and get mortgage assistance.Talk to a Professional About Mortgage Reduction Programs in Your Area. Surfers who participate in this campaign can work with a mortgage professional where they can modify their mortgage and lower their monthly. Mortgage reduction programs typically debit your bank account every two weeks for half of your monthly mortgage payment. Consider a do-it-yourself mortgage reduction plan. A Veterans Administration (VA) interest rate reduction refinance loan (IRRRL) can be used to refinance an existing VA loan to lower the interest rate and payment. IRRRLs do not require cred. DISTRIBUTION OF BENEFITSIn the aggregate, the home mortgage interest deduction substantially lowers the amount of taxes due from US households and thus lowers government revenue. For fiscal year 2. Office of Management and Budget estimates that the total amount of tax revenue lost was around $7. The only “tax expenditures” (as the Office of Management and Budget calls them) that were larger were due to the non- taxation of employer contributions to health insurance and retirement plans. With median household income in the United States around $5. This difference between the aggregate and household savings can be explained by two facts. First, only a fraction of taxpayers claim the deduction. In tax year 2. 01. Joint Commit- tee on Taxation estimates that about 2. Second, of the small number of returns claiming the deduction, a disproportionate amount of the benefits went to high- income house- holds. Over 4. 0 percent of the $7. That leaves just about 2. Figure 2 shows the number of households that claimed the mortgage interest deduction in 2. The bottom line is that most households would not be significantly harmed by removing the mortgage interest deduction. The 7. 8 percent of households not claiming the deduction wouldn’t be harmed, and most stand to benefit if tax rates are lowered. For the typical household receiving $1. High- income households would be harmed by removing the mort- gage interest deduction, but this represents a way to raise tax revenue without raising tax rates and thereby discouraging productive activity. To the extent that lower marginal tax rates encourage more economic activity, households in all income groups would be better off. EFFECTS ON HOMEOWNERSHIPMany defenders of the home mortgage interest deduction claim, as their central argument, that it makes housing more affordable for middle- class families. However, because of the nature of the tax system, this deduction does not necessarily provide incentives to everyone—nor does every debtor who pays interest on a mortgage pay lower taxes. The reason is that not all tax- filers use the itemized deductions that allow them to deduct their interest payments, and those who deduct are concentrated in the higher tax brackets while those who take the standard deduction are concentrated in the lower brackets. Moreover, it is important to recognize that the mortgage interest deduction is not precisely a deduction on home ownership. Homeowners are not allowed to take it against the part of the home they own (the down payment and prior repayment of principal). Instead, they can only take it against the part of the home they borrow. For these reasons, the mortgage interest deduction is an inefficient tool for increasing homeownership, since its primary effect is to encourage Americans who would have already been able to afford a house to take on even more debt. Empirical evidence supports the claim that the mortgage interest deduction has little effect on homeownership rates in the United States. Between 1. 96. 0 and 1. More sophisticated analysis suggests that the homeownership rate would be modestly lower without the deduction, by around 0. But the case is weakened further when we consider the costs of the mortgage interest deduction. Beyond the obvious cost of less government revenue from some taxpayers (and thus higher taxes on others to maintain a given level of government spending), there are several economic distortions that result from this deduction. One distortion is that more of society’s resources, human and physical, are devoted to high- income residential housing construction than would otherwise be the case. Recent empirical research suggests that the mortgage interest deduction increases the size of homes purchased but not the overall rate of homeownership. When the capital structure of the economy is altered, resources are not allocated efficiently and economic growth is hindered. A second economic cost is the alteration of the distribution of income in the country. Because this deduction favors those with high incomes, high marginal tax rates, and many other itemized deductions, the distribution of income is skewed in favor of the wealthy when compared with a simpler tax code. This outcome may further the popular notion that the entire system is rigged in favor of the wealthy. In addition, the misallocation of capital to the construction of high- income houses is to the benefit of the wealthy and skews the structure of the economy in their favor. The final major cost of the mortgage interest deduction is the cost of lobbying and rent- seeking associated with the deduction. Because the large benefits of this deduction are concentrated on a small group of taxpayers, a variety of lobbying and pressure groups are willing to expend resources to preserve this deduction in Congress and in the court of public opinion. While this spending is beneficial to the recipients of the benefit, from a social perspective it is pure economic waste and leads to lower growth for the economy as a whole. Where we cannot be sure of the subsidy having an economic cost is in the general level of housing prices. Contrary to many claims that removing the mortgage interest deduction would reduce the price of houses, economic research suggests that it is likely to have little effect. Furthermore, the deduction primarily affects high- income earners, so we should expect that the subsidy primarily inflates the prices of high- income housing rather than the general level of housing prices. Most within and under the median income do not benefit from the deduction (figure 2), and the benefits are on average small, even for those taking the deduction (figure 1). PROPOSALS FOR ENDING THE DEDUCTIONThere are three main routes toward ending the home mort- gage interest deduction. The first is simply ending the deduction and using the increased tax revenue as more revenue for the federal government. The second is ending the deduction and decreasing the general level of income taxation by an amount that corresponds to the increased tax revenue. The third is similarly stopping the deduction and replacing it with a tax credit that would be enjoyed by taxpayers upon the purchase of their first home. A major benefit of the first two possible routes is that both of them would end the federal government’s subsidization of homeowners. A benefit of the first proposal is that it could help stem the tide of red ink seeping from the federal government, and do so without threatening programs that better advance the general welfare. However, this money might amount to a net tax increase, which could harm economic growth in the short and long run. Therefore, our favored approach, on efficiency and equity grounds, is to eliminate the deduction and simultaneously lower marginal rates so the typical homeowner is no worse off. Endnotes. 1. For an overview of the major tax expenditures in the current federal tax code, see Jeremy Horpedahl and Brandon Pizzola, “A Trillion Little Subsidies: The Economic Impact of Tax Expenditures in the Federal Income Tax Code” (Mercatus Working Paper, Arlington, VA: Mercatus Center at George Mason University, October 2. Shapiro, “The Benefits of the Home Mortgage Interest Deduction,” Tax Policy and the Economy 1. US Census Bureau, “Housing Vacancies and Homeownership,” http: //www. Rosen, and Douglas Holtz- Eakin, “Housing Tenure, Uncertainty, and Taxation,” Review of Economics and Statistics 6. Taylor, “Does the United States Still Overinvest in Housing?” Economic Review, Federal Reserve Bank of Dallas, Second Quarter 1. Andrew Hanson, “Size of Home, Homeownership, and the Mort- gage Interest Deduction,” Journal of Housing Economics 2. Donald Bruce and Douglas Holtz- Eakin, “Fundamental Tax Reform and Residential Housing,” Journal of Housing Economics 8, no. Mortgage Reduction Programs. What if you opened your mailbox and found an offer that would allow you to pay off your mortgage years ahead of schedule? This is exactly the promise made by businesses that offer mortgage reduction programs. How the Programs Work. Mortgage reduction programs typically debit your bank account every two weeks for half of your monthly mortgage payment. By paying every two weeks instead of every month, you end up making an extra month's payment each year. Tips To Consider Before You Sign Up. Mortgage reduction programs often charge high fees. Some companies charge as much as $5. Since the company collects money from you every two weeks but only applies it to your mortgage on the due date, the company earns interest on your money. Once you sign up, you must make all of the payments if you want to continue in the program. If you don't, you’ll face late fees and may lose your right to participate in the program. If you decide to set up a formal mortgage reduction plan, choose carefully. Call your mortgage company first. You may be able to set up a plan directly with them or they may have a mortgage reduction program to recommend. If you go with a company that isn’t your mortgage company, make sure your money will go directly to your mortgage company so there is no chance of your mortgage not getting paid. Make sure the contract gives you the right to cancel at any time, and that any money that has been debited from your bank account, but not applied to your mortgage payment will be refunded to you. Remember that you won’t get back any fees you paid to set up the mortgage savings program. Consider a do- it- yourself mortgage reduction plan. Most lenders allow you to designate an extra amount of money to be credited toward paying the principal on your loan. Simply send a bit more money with your regular mortgage payment each month. By making an extra payment each year through the do- it- yourself method, you can achieve the same results as a mortgage reduction program, but with greater flexibility. If you find yourself short on funds one month, you can make your regular mortgage payment without adding any extra. We Can Help. If you have a complaint about a mortgage reduction program, contact us toll free within North Carolina at 1- 8.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. Archives
November 2017
Categories |