_PRORATE_ the "Home Mortgage Interest Deduction"

Daryl wrote:In Australia we don't have a tax deduction on mortgage interest or payments on your primary residence. We do have it on investment propertys, so the usual advice is to pay your home off as early as possible then take out a separate loan to buy an investment property to rent out.

That's, um, fascinating.

How much does it cost to buy a politician to get that kind of screw-the-new-generation tax structure into place?

Taxes and wealth: Wealthy getting wealthier:[POWER]

It requires morals/ethics to admit when to put down the bully pulpit hammer[POWER]. If one is in a society where the only thing they care about is ME ME ME, then a capitalist economy will eventually revert back to an oligarchy one, where a few super rich power brokers hold sway over the entire population.

We see this today in that corporations are being bought and made bigger and bigger by mucky mucks on wall street. They even retain their old names so the average person forgets how enormous and powerful these corporations/banks/hedge funds are.

For this reason, the Sherman anti-trust act of 1890 was passed and used to break up these monolith monopolies or near monopolies for this very reason. The use of this legislation Needs to happen today. The problem is that it is a global market place and you cannot anti trust giant corporations in Europe/China/Japan etc. This means that their huge corporations retain their aggrandized power and influence while your corporations/companies would lose their power and footing in the world.

Therefore the only way to retain a vibrant capitalist economy yourself, is to enact tarrifs, abolishing "free trade" which isn't free by the way as it always helps those less wealthy than you, allowing the use of anti-trust laws breaking up these fewer and fewer power brokers in our economy.

PS. There wouldn't be a home mortgage interest deduction if I had my way about it. In fact nearly every deduction I would axe making taxes nice and simple for the individual. Now businesses on the other hand would have different deductions as this is how one stimulates different parts of the business sector.

PPS> No, nothing in life is "fair". Quite trying to make everything "fair" as even children know this. Its only us "adults" who forget going off the deep end into utopian Bull Shit and think our Shit doesn't stink.

To add a complication to the pro-rating scheme, how about adding a high home price modifier. For example those who live in a high housing price zip code can deduct an extra 20% of their interest.

I'm puzzled by your comment, and am obviously too dumb to follow the logic. Can't see any reason to allow a tax deduction on people's homes (not a business), but an investment rental property should be treated like any other business & investment loan deductions allowed. All three of my kids bought their own homes in their early 20s and are paying off their mortgages as quickly as possible to then buy investment properties. Our various tenants could buy their own homes but prefer to invest their money in expensive cars, clothes, and consumer goods; and possibly waste the rest.

RandomGraysuit wrote:

Daryl wrote:In Australia we don't have a tax deduction on mortgage interest or payments on your primary residence. We do have it on investment propertys, so the usual advice is to pay your home off as early as possible then take out a separate loan to buy an investment property to rent out.

That's, um, fascinating.

How much does it cost to buy a politician to get that kind of screw-the-new-generation tax structure into place?

Daryl wrote:I'm puzzled by your comment, and am obviously too dumb to follow the logic. Can't see any reason to allow a tax deduction on people's homes (not a business), but an investment rental property should be treated like any other business & investment loan deductions allowed. All three of my kids bought their own homes in their early 20s and are paying off their mortgages as quickly as possible to then buy investment properties. Our various tenants could buy their own homes but prefer to invest their money in expensive cars, clothes, and consumer goods; and possibly waste the rest.

RandomGraysuit wrote:
quote Daryl, "In Australia we don't have a tax deduction on mortgage interest or payments on your primary residence. We do have it on investment propertys, so the usual advice is to pay your home off as early as possible then take out a separate loan to buy an investment property to rent out."

That's, um, fascinating.

How much does it cost to buy a politician to get that kind of screw-the-new-generation tax structure into place?

The comment was on the corrupt political structure where politicians are bribed (oops, political contributions we all know bribery is illegal, right) to make special interest laws. Will Rodgers had a joke in the 1930s, "America has the best politicians money can buy, unfortunately we're all poor folks."

Poker

Daryl wrote:I'm puzzled by your comment, and am obviously too dumb to follow the logic. Can't see any reason to allow a tax deduction on people's homes (not a business), but an investment rental property should be treated like any other business & investment loan deductions allowed. All three of my kids bought their own homes in their early 20s and are paying off their mortgages as quickly as possible to then buy investment properties. Our various tenants could buy their own homes but prefer to invest their money in expensive cars, clothes, and consumer goods; and possibly waste the rest.

One of the effects of the American mortgage interest deduction for homeowners is that it levels the playing field for younger adults compared to their elders. Consider this situation:

OldGuy buys an investment property. They pay $1000 a month on a mortgage. Of that, $666 is interest. They deduct $666 from their taxes. They rent the property out for $1000. On the remaining $333 in income after the deduction, they pay 30% tax. He pays $100 in tax per month, and the house covers itself in rent/mortgage. At the end of 15 years, he has a fully paid off house.

YoungGirl buys her first house. She pays $1000 a month on her mortgage. Of that, $666 is interest. She deducts nothing, gains the same amount of equity every month as OldGuy, and pays $300 in taxes at 30% on the income she used to pay for the house. At the end of 15 years, she has a fully paid off house. BUT she has also paid much, much more in taxes than OldGuy. Effectively, she had 20% less purchasing power than OldGuy when she went house shopping, because she had to pay an extra $200 in taxes.

Let's look at how that plays out...

OldGuy has $500,000 in savings, investments and retirement accounts because he's been doing this stuff for 30 years. He also has better credit, and can get bigger and lower-interest loans relatively easily. Instead of charging $1000 a month, he realizes he can cover his ENTIRE tax+mortgage burden by charging $1150 a month in rent, plus have $5 left over to grab a burger. Oldguy buys five $100,000 properties (requiring a down payment of a mere $100,000 total), gets them to pay for themselves, and in 15 years will own five properties free and clear.

YoungGirl wants to buy a house. As OldGuy and his buddies continue to snap up properties while she's in secondary school, the housing market starts getting inflated. She'd like to buy a house of her own, but because she's effectively paying an extra 20% on the mortgage, she can't afford it. She gets a roommate and starts renting from OldGuy.

Ten years later, Australians wonder why their housing is so damn expensive and there's so many empty rental properties going for way too much.

Thanks for that and I see what you mean.
We do however have a first home buyers grant of $15,000 plus other rebates for young home buyers. Being a similar "old guy" to what you depict I do need to point out that I was once a young renter myself, and the "young girl" you mention will probably pay off her 20 year mortgage in 10-15 years and then be an "oldish girl" buying her own rental property.
My first investment property had a mortgage payment of $140 a week and the rent I collected was $145. Not my fault that the renters were shortsighted and stupid, and 20 years on still renting elsewhere .
In our state there remains a serious shortage of rental properties, with a vacancy rate of about 2% (just turn over gap). We charge about 10% less than market rate and maintain the properties well to ensure we retain good tenants.

Daryl wrote:Thanks for that and I see what you mean.
We do however have a first home buyers grant of $15,000 plus other rebates for young home buyers. Being a similar "old guy" to what you depict I do need to point out that I was once a young renter myself, and the "young girl" you mention will probably pay off her 20 year mortgage in 10-15 years and then be an "oldish girl" buying her own rental property.
My first investment property had a mortgage payment of $140 a week and the rent I collected was $145. Not my fault that the renters were shortsighted and stupid, and 20 years on still renting elsewhere .
In our state there remains a serious shortage of rental properties, with a vacancy rate of about 2% (just turn over gap). We charge about 10% less than market rate and maintain the properties well to ensure we retain good tenants.

Random Graysuits point is that if that particular policy is in place for a long time (ie several decades or even generations) then the inflation in the housing market will be so severe that although the 'young girl' now may manage but a different 'young girl' years later will be entirely unable to buy a house and will be forced to rent at an inflated price her entire life. This leads to oligarchic situations. In reality, this probably wouldn't happen. As the effects became apparent an outcry would build and the government would end the deduction or possibly introduce other measures to aid first time buyers. This would puncture the housing market bubble, which would probably trigger a recession depending on how far the bubble had been allowed to rise and the strength of the rest of the economy.

JimHacker wrote:Random Graysuits point is that if that particular policy is in place for a long time (ie several decades or even generations) then the inflation in the housing market will be so severe that although the 'young girl' now may manage but a different 'young girl' years later will be entirely unable to buy a house and will be forced to rent at an inflated price her entire life. This leads to oligarchic situations. In reality, this probably wouldn't happen.

Not even that extreme. It's a disadvantage, but not an insurmountable one. What that sort of a policy *does* do however, is ensure that the older, usually wealthier generation is constantly, statistically advantaged over the younger one, with their advantages solidly codified into law.

Laws that seek to create rent-seeking behavior (in senses far beyond simply paying rent) are bad for your economy. So are laws that seek to concentrate wealth, as that often fosters liquidity traps. The entire "1%" controversy in the United States is over precisely this sort of lawmaking.

RandomGraysuit wrote:
Not even that extreme. It's a disadvantage, but not an insurmountable one. What that sort of a policy *does* do however, is ensure that the older, usually wealthier generation is constantly, statistically advantaged over the younger one, with their advantages solidly codified into law.

Laws that seek to create rent-seeking behavior (in senses far beyond simply paying rent) are bad for your economy. So are laws that seek to concentrate wealth, as that often fosters liquidity traps. The entire "1%" controversy in the United States is over precisely this sort of lawmaking.

I would say that it really can become such a massive disadvantage, although it would take several decades to do so. If you look at house prices in the western world in 2006, depending on the country they'd been rising in a bubble for between 10 and 20 years, generally as a result of just such behaviour as governments tried to incentivise high-quality housing (which was out of reach for first-timers to buy but not to rent) and stimulate contstruction. And when first-timers complained about being priced out of the market, they did more of the same - not realising that the problem wasn't supply and demand but a question of who they were incentivising to buy. This led to a significant increase of renters.

But this seems to be exactly what you said so I don't see what you disgreed with me about? perhaps that comment on oligarchies. While obviously, house prices by themselves don't create an oligarchic environment they do contribute to it.