Tax benefits for homeowners spread unevenly

[Judi Lynn]

Tax benefits for homeowners spread unevenly
Kenneth Harney

Sunday, July 16, 2006

(07-16) 04:00 PDT Washington -- Federal tax benefits for homeownership are among the heftiest and most popular of any in the Internal Revenue Code: An estimated $81 billion for mortgage interest write-offs, $15 billion for local real estate taxes and an additional $24 billion for capital- gains exclusions this year alone, according to the congressional Joint Committee on Taxation.

But who really gets these tax-code goodies? Who gets to write off the most? New research offers intriguing insights into where the billions of dollars in annual mortgage interest and real estate tax deductions flow, state by state, congressional district by congressional district. The research was conducted by the National Association of Home Builders, using the latest comprehensive IRS data available -- tax year 2003.

Among the eye-opening findings:

-- Homeowners in a single congressional district in California, the 14th District in Silicon Valley, took more in mortgage interest write-offs than all the residents of six states combined. Homeowners in the 14th -- which covers most of San Mateo and Santa Cruz counties, plus part of Santa Clara County -- claimed $3.2 billion in mortgage interest deductions during the year covered by the study, compared with $2.9 billion by all the residents of Vermont, Wyoming, West Virginia, Alabama and North and South Dakota. The average deduction in the 14th District was $35,000, compared with an average of $9,500 for homeowners nationwide.

-- Residents of a single congressional district on Long Island wrote off more in real estate property tax deductions than all the homeowners from seven states combined. Owners in New York's Third District took $1.25 billion in deductions -- more than the $1.2 billion total claimed during the same period in Hawaii, Wyoming, Arkansas, Delaware, the District of Columbia and North and South Dakota.
(snip/...)

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2006/07/16/REGQ0JUS0C1.DTL&type=politics

[OKNancy]

1. They are ramping up to disallow the deduction

Personally, I see no problem with the inequity. Expensive, newer homes are going to pay higher mortgage interest.

[Vinca]

2. You're exactly right.

They're making a case to disallow one of the meager shreds of largesse the average person can get from the government.

[w4rma]

3. Overpriced houses will have higher mortgages and therefore higher

deductions.

I agree with you, exactly.

[notadmblnd]

6. one would also need to consider the density of the population

nt

[Warpy]

8. Yes, absolutely. People with shacks in California

are always going to pay more than people with the same shack in Mississippi, and that means they'll get more back at tax time. Screaming about inequality of distribution in this case is a stupid smoke screen and statistical diddling only a right winger could love.

It would be nice to see the deduction apply to primary residence, only, to disallow the Ken Lays of the country the multiple deductions on multiple McMansions in resort areas, but I'd hate to see any chipping away of the only tax shelter available to working stiffs.

And yes, they do have mortgages, often as a part of an overall tax strategy.

[pokercat999]

20. Exactly and hundreds of acres inherited from your

family with no mortgage will not qualify for a mortgage interest deduction. However you may be able to get thousands from the federal farm subsidy program. We can make statistics say just about anything.

[UpInArms]

4. is this the "why" behind the elimination of the mortgage/re tax deduction?

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=102&topic_id=2386768

US Treas mulls own stamp on tax code overhaul (eliminating mortg deduction

http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-07-13T175120Z_01_N13454370_RTRIDST_0_ECONOMY-TREASURY-TAXES.XML

WASHINGTON, July 13 (Reuters) - U.S. Treasury officials are likely to put their own stamp on a proposed comprehensive overhaul of the tax system suggested by a blue-ribbon panel in November, an official said on Thursday.

"We have been considering our own possible options," said Treasury Department tax official Eric Solomon, who has been nominated to fill the long-vacant position of assistant secretary for tax policy.

Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, pressed Solomon to tell the panel when Treasury would forward its recommendation to President George W. Bush. The Treasury is working from the recommendations of a bipartisan panel that proposed a series of steps aimed at making the U.S. tax system simpler and fairer, including eliminating many deductions and reducing tax rates.

<snip>

The panel recommended eliminating deductions for many taxpayer costs, including mortgage interest and state and local taxes. The panel also proposed requiring workers to pay taxes on health care benefits provided by their employers.

...more...

[union_maid]

5. Then I propose total income redistribution

If we like equality so much - and I do - let's tax the rich until they're middle class. I mean, if we have to pay taxes on employer provided health benefits, presumably because these benefits are not uniform -some have them, some don't - then I think we should go whole hog. Level the whole economic field. Progressive taxation all around or leave us the hell alone.

[bbgrunt]

12. taxing employer provided health care would really hurt.

While there is definite inequity here between those who pay their own health care and those who get this from their employer, the resolution should not be to tax the benefit, but give a full (but capped) deduction for all.

The elimination of this deduction would only devalue the benefit for working stiffs, create a movement to eliminate employer provided benefits and replace them with cash benefits (and you know how THAT would work out--another way to screw employees. Employees also would be on their own to fight with insurance companies and face the same kind of choices as medicare D victims) While some might find this preferable, many would end up not getting coverage at all--especially the young and currently healthy --thus reducing the pool and subsequent increase in premiums.

The mortgage deduction also should be capped to reduce some of the inequities and decrease the incentive to live in McMansions.

Eliminating State and Local tax deductions will hurt high-tax state residents the most and there lead to a clamor to cut services and taxes in these states.

They truly want to drown all govt.........

[Gormy Cuss]

7. No, the 'why' is making Joe Average pay for tax cuts to the wealthy.

The same people who believe that estate taxes disproportionately affect small business owners and family farms rather than the wealthy families in the country.

As Harney sums up in this article, the reason Californians benefit so much from the mortgage interest is they are more likely to have huge mortgages.That's huge debt. Similarly, people in NY and NJ have high property taxes and high cost housing.

Lost in the discussion is that in order to afford those houses these same taxpayers have higher average income levels too and are paying more dollars in Federal income taxes. California and New Jersey are net losers when the comparison is made of dollars sent to the Federal treasury vs. dollars sent back to the state. I don't know about NY off the top of my head. In NJ that's a campaign issue because NJ gets back only .57 of each dollar sent to the Feds. Although this 'payback' calculation is problematic, it's a talking point that gets the public's attention. Just wait until it's recalibrated to take in account the effect of the tax overhaul proposal.

[happyslug]

9. This aimed to ease the administration of the Tax code.

Under Reagan the tax code was last revised. Most Deductions were eliminated, and the standard deduction raised, so that less people would itemize their deduction (Thus reducing the amount of paperwork going to the IRS and thus reducing the COST of administrating the Income Tax Code).

The problem was the Mortgage interest Deductions was one of the few deduction that were retained. With the radical increase in housing prices since the 1980s, this whole system has been undermined in those area with the highest growth in housing values. This was a minor problem under Clinton for you had low interest rates, but as rates have raised under Bush so has the amount of interest being deducted. Thus the raising Rates AND increase amount of Mortgages have shifted more and more people to itemizing instead of taking the standard deduction. All of this has increased costs of the IRS, especially in the areas of the highest housing costs. At the same time Congress has been cutting the IRS auditing budgets since Reagan and the IRS is now in a bind (And has been since Reagan but lived with it till the IRS saw a chance to ease the bind). The IRS sees a chance to say to a lot of Congressmen your constituents are NOT benefiting from this deduction because they do NOT pay enough interest, so just increase the Standard Deduction and eliminate the Mortgage deduction.

The IRS itself has never liked how the Republicans have treated it since Reagan, but in an election year many Republicans will vote for elimination of the Mortgage Deduction and an increase in the Standard deduction since the states most hurt by the Change Voted for Kerry and Gore in 2004 and 2000 respectively. Now most of the areas with high deductions tend to be Republican, but in this election year the GOP is running scared and a "Tax Cut" that is revenue Neutral. i.e. what the Government loses in the increase Standard Deduction is offset by the gain in taxes from those people who will no longer be able to take the mortgage interest deduction (and most of the areas with high mortgage interest deductions are in safe GOP districts).

Thus if Congress does both, the GOP can say they provided tax relief to the little guy, while technically NOT increasing the deficit. I suspect the IRS sees this as they best chance to get this done and saving it a lot of work keeping track of all those people who itemize do to high Mortgage interest they pay.

[Davis_X_Machina]

10. There is ia long history...

...of hostility towards home-ownership by ordinary Americans on the right.

The argument is as follows.

Workers who own houses are less likely to move where the jobs are than workers who rent, who can just up-stakes and move -- south and west -- when the jobs move -- inevitably to a low-wage, no-union, low-regulation, low-tax state. There they will join a mega-church, shed all the bad, blue state habits they acquired from their parents, and turn into real Americans.

One big Dothan, Alabama, from sea to shining sea.

[teryang]

11. embellishing feudal dues

killing social mobility.

Next stop - taxation of employer provided health care benefits.

Bend over America, here it comes again.

[sam the dawg]

13. fair taxation

flat tax is the only fair taxiation.

gov spending is a runaway train -- it has to be stopped.

[Mountainman]

17. No flat tax is not fair and please don't use this thread to push your

conservative tax agenda. The flat tax will lower rates on the weathy again, keep or raise the rates on the middle class and take away all middle class deductions. That has to be in order to keep the government running.

[1932]

18. Nobody REALLY believes that it's wrong to pay higher marginal rates

on higher levels of income, do they?

The only way to spread the tax burden fairly is to have people with more money (who have a lower marginal value of an additional dollar) pay a little bit higher marginal rates than poor people who have higher marginal values of a dollar in income (since the poor have fewer of them).

I do believe that this is pretty much a settled issue. I can't believe that anyone really could be convinced that this doesn't make sense. People do realize that a flat tax would benefit the super rich immensely, don't they?

[AlCzervik]

14. the median home price in Silicon valley is about $750,000 and thats no

castle, also Ca has Prop 13 so the the property tax on that is pretty big so i'm not surprised they have more interest to write off.

[progressivebydesign]

15. So it begins... the final dismantling of the middle class.

People would have to be complete morans not to see what is happening. 58% of the stock market's wealth is in the hands of 1% of Americans. Good paying jobs are disappearing (our friend who worked at Intel for 23 years was just laid off so the company can raise profits for shareholders), it's a concentrated effort to put the wealth and power in the hands of a small group of powerful people. And the Americans.. most of them? Oh.. they're worried that their favorite TV show might get cancelled, or that no one has seen Tom Cruise's baby yet, running off to another sale at Target to buy more shit they don't need. Sometimes I think America deserved the crappy-ass country we've allowed to take shape..

[1932]

19. But the truth from the article is that the rich are benefitting from this

tax break (as are the mortgage lenders, since they're having taxpayers subsidize their profits).

There should be a way to limit the deduction to the real middle class and to do it in a way that doesn't constitute subsidized profit for banks and which doesn't inflate the sale price of homes.

[progressivebydesign]

16. MORE punishment for the BLUE STATES!!!!

Think about it.. firs the bullshit homeland security budget that punishes ALL the blue states, and now this... think about it... it's mostly the BLUE states that are being mentioned here!!!! The only wealth they'll allow is in TEXAS, Florida, and Aspen, Colorado. Think about it...

[shanti]

21. does this include the mortgage credit certificate?

that would be very bad! :( i take the standard deduction, but have a MCC (for first-time homeowners).