mortgage talk: Jordan vs. Liu, and much more.

Max Sawicky sawicky at epinet.org
Thu May 27 22:20:59 PDT 1999


<< Max Sawicky wrote:
> Properly speaking, the
> tax benefit is received by all who will purchase, are purchasing,
> or have paid for a house.

Not really. Only those whose mortagage interest is, has been or will be above the standard deduction (reduced by any other deductions they may have, such as charity, etc). >>

I would take exception for three reasons. 1. I was comparing the usual calculation of beneficiaries -- those currently deducting mortgage interest -- to what I suggest is a better one, those who are, will, or have already used the deduction. 2. To some extent, the house price capitalizes its tax advantages, so whoever owns a house free and clear or pays a mortgage benefits from said tax advantage. 3. Since those who have mortgage interest usually have other itemizable deductions too, and since all such deductions are fungible, the concept of "those whose mortgatge interest is . . . above the standard deduction" is not well-defined.


>> Roughly speaking, only those whose mortgage
is, has been or will be over $100,000. If I recall, the median house sells for $120,000. Since people are susually required to put 20% down, >>

I'm in my present house with a 95% mortgage based on an initial loan that exceeded the price of the house. I suspect many others have ducked under your 20% hurdle as well.


>> this means that over half of present, past or future homeowners (who are
themselves a somewhat selective segment of the population) will never, ever benefit from it, doesn't it? >>>

Only if "this" were true.


>> Also, the benefits
are pretty negligible unless your *average* mortgage (roughly speaking, half of your *starting* mortgage, since it presumably varies between that point and zero) is well north of $100,000, which essentially means folks who can afford 1/4 million homes. Top quintile, roughly speaking. >>

I don't have a reference handy. I acknowledged myself that the housing preference is one of the worst-distributed benefits in the tax code. Whatever the static distribution of the benefits, the multi-period one is not as bad. Ain't no two ways about that. How much 'less bad' I couldn't say.

Cheers,

Max



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