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May 18, 2005


Hi Half Sigma
"Bryan seems to imply that the government shouldn’t be subsidizing home ownership via the tax code. If that’s what he means, then I agree with him."
If you think the farm lobby is large, think about the lobby of the 69% of families that own homes. Taking away the tax subsidies for homeowners would be as likely to pass as the abolition of social security and medicare.
In theory, I can see the argument, but I have way too much invested in my home to really consider it.

Removing the tax subisides certainly has no chance of ever happening if no one even publicly advocates for it.

The essence of such tax benefits is really the equivalent of the 69% who are "haves" taking from the 31% who are "have nots." One would think that Democrats, who normally say they are interested in fixing these sorts of inequalities, would be all behind it.

Subsidy? I pay way more in taxes all year then I get back from the government for owning a home. I am able to deduct my mortgage, which is darn nice of the government - but they pretty much have to do that, since they tax me almost half my income out of the box. Maybe I should threaten to grow some crops in my backyard and get paid not to.

Hi Half Sigma
I understand your feeling very well. If I rented, I would feel the same way. But as an economist, I will tell you that you are dreaming if you think people will ignore their self-interest to support the greater good and help the renters. Its true that Democrats should believe that taking tax money from renters to subsidize relatively wealthy home-owners is wrong, but there are too many homeowners for such a change to ever take place. For a politician to say "renters should not have to subsidize homeowners" would be about a politically suicidal as saying "Jesus was a sissy."

Yes, Democratic voters have no problem spending money to help the poor when it isn't directly connected to their own taxes. Like spending general funds, or creating burdensome regulations, even though both these actions have to be paid for by America as a whole.

But Democrats don't support abolishing such an extremely unfair tax benefit which subsidizes well off homeowners at the expense of less well off renters. The very opposite of their normal platform.

Perhaps Democrats are just as greedy as Republicans, it's just that they have no clue about economics so they can't see how other Democrat programs are hurting them.

And to respond to what Scott said: "Subsidy? I pay way more in taxes all year then I get back from the government for owning a home."

Obviously, but renters pay those same taxes. Renters are subsidizing homeowners. The government had determined that renters are BAD PEOPLE for not wanting to own a home, and need to be punished by the tax code.

Government shouldn't be making these decisions.

Hi Half Sigma
There is another point to consider. Currently, the Government taxes rental income as income. It would be unprofitable for people to invest in homes and rent them out if they could not deduct the interest. This is standard business taxation: you can tax profits but you cannot tax revenue. So changing the tax code the way you suggest would not only be unpopular, it would be complicated.
I have wondered if it might be better to avoid income tax and instead tax consumption. In that framework, the landlord would not have to pay tax on income if it is used to pay the mortgage. There would be no need for a subsidy for homeowners. But I thought at the time that the whole homeowner subsidy issue would kill a consumption tax. I wrote about it here.

MH, we're only talking about the home mortgage interest deduction you get on Form 1040 Schedule A. Being in the business of being a landord has nothing to do with that.

In fact this is yet another example of the tax benefit of owning a home that's INDEPENDENT of the home mortgage interest deduction, because when a landlord rents to the tenant, income is generated that is taxed. But the homeowner's imputed rental income is not taxed.

Furthermore, when a landlord sells a house, he must pay capital gains tax, but when a homeowner sells his primary residence he gets to avoid paying capital gains and instead lowers the basis of the new house.

Hi Half Sigma
You're absolutely right that the imputed rental income of owning your own home should be taxable income in theory. I cannot argue against that economically. When I said that not being able to deduct interest would complicate things, I was thinking about people who rent our rooms in homes they own. But in theory, I will say that messy and fair tax law is better than a simple and unfair one.
No doubt about it, the tax law has all kinds of goodies in it for homeowners. That's the median voter theorem in action.

Hi Half Sigma
This has been an interesting debate here on the issue of home mortgage deduction. After some thought, I think a politically plausible change in the tax code to help the renters is to make rent deductible, (of course, the standard deduction would probably wipe out this benefit). Anyway, I wrote about this issue in my post: Rental Deduction at my site Chocolate and Gold Coins.

If you were one of the lucky ones, as you say, who made a ton of money by selling his house recently, then don't you have to turn around and buy another one of those houses that are now very expensive? How much did you really gain?

Dan, no you don't have to buy another house, you can rent an apartment until prices go back down.

SUB: Upwardly biased home ownership rates

The 'true home ownership rate' that is of concern should be one that explains if more people are owning homes. However what the census data describes by home ownership rate is the proportion of households that are owners.
Definition link

This of course does not make it clear what a household is although it explains what a householder is. If this statistic has been calculated by finding the number of housing units and then finding the proportion of them that are occupied by owners then it would be upwardly biased estimate of 'true home ownership rate' to the extent that the same owner owns multiple housing units. I suspect that this is true by doing this calculation for first quarter of 2004 and 2005 using the data in table 4. We will get the same home ownership rates as shown in Table 5 that are
1st quarter 2004-68.6
1st quarter 2005-69.1

Link to tables

Of course more accurate home ownership rates would be calculated if data on the number of housing units owned by a household were available. Any links to such data would be much appreciated.

m zac, it's probable that a certain percentage of new homes being added to the national housing inventory are second homes that are only occupied a few weeks a year.

(Someone more "liberal" than me might complain how it's unfair that some people have multiple homes that are unoccupied while others can't afford any place to live at all.)

It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

Hey Christy, now that it's 2007 and what you said would never happen...has started.

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