ITT we discuss the ongoing debt limit and budget talks

[lawgator1]

Listening to reporter on POTUS channel, she says the two sides have identified about $600 billion in cuts everyone agrees to and they think they can get in principle to between 1 and 2 trillion in cuts.

The goal was to reduce deficit in this process by 2-4 trillion. And so the debate is now formally joined on whether tax increases will be used to get to the bigger number.

Word is that Obama administration has floated idea of eliminating mortgage interest deduction for households with more than $500k in agi. Would raise hundreds of billions over ten years.
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[droski]

jesus and it would torpedo the housing market as well. sounds like a brilliant idea. hard to believe that number is in the hundreds of billions. many rich people of that kind of income don't have mortgages. the rest will be completely screwed and could easily lose their houses.

 

[lawgator1]

You know what -- I'm thinking I may have that number it would generate wrong. I am looking ....

 

[Cartervol]

Sounds like they're officially out of ideas, good ones anyway. The housing market is on life support now, this won't help that out any.

 

[lawgator1]

Question: How many people making over half a mill a year buy or don't buy a house based on the mortgage interest deduction?

Follow-up: How many people making less than $200,000 actually do factor that into their decision?

 

[droski]

Question: How many people making over half a mill a year buy or don't buy a house based on the mortgage interest deduction?

Follow-up: How many people making less than $200,000 actually do factor that into their decision?

i'd say those at the higher end of the real estate market factor it in more than the lower end. why? because the deduction is a much higher % if you are in the higher tax bracket. you speak from someone where housing is somewhat affordable. in new york or LA the mortgage deduction is the difference between buying a house and a condo for many.

 

[volinbham]

Say you are in the 35% marginal bracket and you get a 500 K mortgage - P&I payment is 2685 (5% loan) and mortgage interest deduction is 729 making the effective payment 1956. I'd say it matters and would have a substantial impact on home prices.

 

[volinbham]

Interesting article in the WSJ today arguing that even 2 trillion in cuts is meaningless if nominal interest rates return anywhere close to historic standards -- basically our interest payment increases would eat up all that 2 trillion and more.

 

[lawgator1]

Interesting article in the WSJ today arguing that even 2 trillion in cuts is meaningless if nominal interest rates return anywhere close to historic standards -- basically our interest payment increases would eat up all that 2 trillion and more.

Depends on the time horizon, obviously. But, yes, if the economy bounces back and rates go higher, the cuts have less impact.

Of course, in that scenario a fair amount of the debt is paid down by increased revenues due to the growth.

Seems like most economists are quite pessimistic at notion we could grow our way out of this. Combination of infrastructure problems, strength of foreign competition, cost of health care, aging population, debt burden slowing growth, rising energy costs, etc., mean we won't see robust recovery, as in times past.

On the flip side, though, that would mean inflation kept in check and rates stay low.

 

[SamRebel35]

It just doesn't pay to get off food stamps these days.

 

[volinbham]

Depends on the time horizon, obviously. But, yes, if the economy bounces back and rates go higher, the cuts have less impact.

Of course, in that scenario a fair amount of the debt is paid down by increased revenues due to the growth.

I don't see how - even with the cuts we are still having deficits. We would need years of surpluses to make any meaningful dent in the debt.

Seems like most economists are quite pessimistic at notion we could grow our way out of this. Combination of infrastructure problems, strength of foreign competition, cost of health care, aging population, debt burden slowing growth, rising energy costs, etc., mean we won't see robust recovery, as in times past.

On the flip side, though, that would mean inflation kept in check and rates stay low.

See above.

Here is the referenced article

Lawrence B. Lindsey: The Deficit Is Worse Than We Think - WSJ.com

 

[lawgator1]

Read mine more closely. I am agreeing that in this particular case we cannot grow out of this deficit. At least it would take a very, very long time.

 

[Vol423]

Listening to reporter on POTUS channel, she says the two sides have identified about $600 billion in cuts everyone agrees to and they think they can get in principle to between 1 and 2 trillion in cuts.

The goal was to reduce deficit in this process by 2-4 trillion. And so the debate is now formally joined on whether tax increases will be used to get to the bigger number.

Word is that Obama administration has floated idea of eliminating mortgage interest deduction for households with more than $500k in agi. Would raise hundreds of billions over ten years.
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The secret service better be ready if he eliminates the mortgage insurance deduction. As a person waiting for this housing market to bottom, it would greatly benefit me - other members of my family - not so much.

Edit: Oops. I just noticed that you said eliminating the mortgage insurance deduction for taxpayers with >$500K AGI. Like droski, I question that tax revenue amount associated with that.

 

[Vol423]

Question: How many people making over half a mill a year buy or don't buy a house based on the mortgage interest deduction?

Follow-up: How many people making less than $200,000 actually do factor that into their decision?

Housing prices have the tax benefit of the mortgage interest deduction baked into them. Eliminate the mortgage interest deduction and lookout below.

 

[volinbham]

Depends on the time horizon, obviously. But, yes, if the economy bounces back and rates go higher, the cuts have less impact.

Of course, in that scenario a fair amount of the debt is paid down by increased revenues due to the growth.

Read mine more closely. I am agreeing that in this particular case we cannot grow out of this deficit. At least it would take a very, very long time.

I don't see how the economy bouncing back and having higher interest rates results in a "fair amount of debt getting paid down".

 

[rjd970]

i'd say those at the higher end of the real estate market factor it in more than the lower end. why? because the deduction is a much higher % if you are in the higher tax bracket. you speak from someone where housing is somewhat affordable. in new york or LA the mortgage deduction is the difference between buying a house and a condo for many.

So?

No one says you have to own, and no says you have to live there.

 

[volinbham]

So?

No one says you have to own, and no says you have to live there.

I agree with this but I thought the point was that this change would torpedo the housing market. I think that it definitely would hit the higher end of the market and then all prices would adjust down accordingly.

 

[rjd970]

I agree with this but I thought the point was that this change would torpedo the housing market. I think that it definitely would hit the higher end of the market and then all prices would adjust down accordingly.

What do you mean by the higher end of the market? New York City high end, or Huntsville, Alabama high end?

 

[volinbham]

What do you mean by the higher end of the market? New York City high end, or Huntsville, Alabama high end?

Everywhere. I'd say once you get into the 600-800K and up homes this idea (removing mort int deduction) would highly impact demand and push prices on these properties down to compensate. Huntsville doesn't have as many of these properties but they are there. Take a place like NY or Cali and the number is greater.

Once a 750K home gets driven down to 650, the 500-600K homes will get driven down too. Why buy the old 550K house now when 650 gets you a 750K home? So down go those prices and so on and so on.

 

[volinbham]

On a 5% loan for 30 years (500k mortgage), losing the mortgage interest deduction is roughly equal to 140K of mortgage (monthly payment wise)

 

[droski]

So?

No one says you have to own, and no says you have to live there.

Nice. And just give an f u to the "rich" folks right? Enjoy it while your home price drops another 20% because the "rich" can't afford it anymore
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[rjd970]

Nice. And just give an f u to the "rich" folks right? Enjoy it while your home price drops another 20% because the "rich" can't afford it anymore
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First off, as has been noted, the price will probably drop to compensate.

Second, it is just the way it is, it has nothing to do with saying f u to the rich. Take my example...I needed to move for a new job and I had to put my house on the market right before the crash happened. I took a huge loss...I can be told I didn't have to move, or change jobs, but I did. I took the loss and moved on. While not the same thing, it is just the way it was. I got effed in the process, yet I did everything right from buying within my price range to actually over qualifying for the mortgage I received. I got screwed because everybody else was stupid.

So the "rich" can now only afford a 400K house instead of a 600K house because the mortgage deduction is gone. So effing what. This is basically boiling down to a luxury tax. If you want the deduction, buy down, not up. Nobody is making the "rich" buy that 600K house with no deduction.

 

[volinbham]

This is basically boiling down to a luxury tax. If you want the deduction, buy down, not up. Nobody is making the "rich" buy that 600K house with no deduction.

If I read the idea correctly (as LG presented it) the deduction is not on the value of the home; it is on the person regardless of what home they buy.

So if you are in a certain income bracket you won't receive the deduction regardless of what home you buy.

Given a housing collapse started this recession I can't see how policy change that will further crash the housing market makes any sense.

 

[KiffinKiller]

If I read the idea correctly (as LG presented it) the deduction is not on the value of the home; it is on the person regardless of what home they buy.

So if you are in a certain income bracket you won't receive the deduction regardless of what home you buy.

Given a housing collapse started this recession I can't see how policy change that will further crash the housing market makes any sense.

Luxury tax doesn't have the best track record.

 

[droski]

So the "rich" can now only afford a 400K house instead of a 600K house because the mortgage deduction is gone. So effing what. This is basically boiling down to a luxury tax. If you want the deduction, buy down, not up. Nobody is making the "rich" buy that 600K house with no deduction.

it's the income that determines whether i get the deduction. what about those who bought before the deduction got eliminated? they should be punished because the current administration thinks that cost of living isn't a factor in wealth? and btw try buying a $400k house anywhere in southern california.