The Charlotte Observer: Deduction cap for mortgages is a win in the tax plan


The Charlotte Observer

Congressional Republicans handed President Donald Trump his first major legislative victory on Wednesday, passing a $1.5 trillion tax-cut bill along party lines. The legislation will cut taxes for four out of five households next year but over the longer term will help the rich tremendously. It also undermines health coverage for 13 million Americans and adds to the national debt.

That said, there are a few bright spots. A cap on mortgage interest deductions is one of them. But even that provision could have been more transformational.

Under current law, homeowners can deduct interest paid on mortgages up to $1 million on a first and second home. That will be lowered to $750,000, and homeowners will no longer be able to deduct interest on a home equity line of credit up to $100,000. It’s a long overdue recognition that it’s nonsensical for the government to subsidize the houses of rich Americans. If real estate experts are right, home prices will drop in the areas of the country with the most expensive real estate, maybe by 10 percent, maybe more.

While that might seem like an unfair outcome for the wealthy, it’s not. The ability to deduct mortgage interest provides an artificial boost to home values that makes it more difficult for those of modest means to secure housing. It is a government program fueling inequality while straining the country fiscally, making it harder to fund programs for those in need. It costs the government more than $70 billion a year — with 90 percent of that going to households bringing in at least $100,000 annually. Lawmakers have been quick to bemoan welfare benefits of a few hundred dollars per month that go to “able-bodied” poor Americans but have been OK with tens of thousands of dollars flowing to the “able-bodied” rich. The deduction cap is a small step toward reversing that perverse outcome.

After it becomes law, the cap will still be skewed toward the wealthy and continue fueling inequality, but a little less so.

But even that small change has gotten pushback from lawmakers, such as Sen. Dianne Feinstein of California, who represent areas with notoriously high housing prices. The median home price in San Francisco, for instance, is above $800,000, the kind of money that can get you a mansion (or near-mansion) in many places. It’s worse in a place such as Teton County, Wyoming, where the median price tops $1.2 million. That may be a good reason to index the mortgage deduction cap to inflation or local real estate markets, to encourage homebuying for those who really need the hand-up while not subsidizing the rich; it is not a good reason to oppose this change.

There’s nothing wrong with buying an expensive house, but taxpayers should not be forced to pick up part of the tab while lower-scale buyers are forced out of a market artificially inflated by a government handout to the wealthy.

Had the GOP focused on more such changes and eliminating loopholes, such as carried interest, the law could have led to a drastically improved tax system. It’s too bad they decided not to.

The Charlotte Observer

More Stories

Post navigation