Proposal: Make mortgage payments deductible from federal income taxes
Simply make mortgage payments, including both equity repayment and interest,
fully deductible from income taxed by the federal government.
Why?
- To provide millions of needed Jobs, the economy must first recover
- Sagging home prices, and sagging home building and financing industries, are at the heart of the current depressed economy
- The American economy may not recover, leaving millions of homeowners underwater
- Millions are unemployed, with tens of millions of person-years of labor and earned incomes lost
- The government's current remedies for recovering from this great recession have proven ineffectual
- Except for this proposal, no other remedy seems likely to fully recover home values, the economy, and jobs
A Right?
- A crisis of confidence in the American Dream of home ownership is core to this great recession
- Home ownership encourages and stabilizes investment and improvements in homes, neighborhoods and communities nationwide
- Federal income taxes greatly add to the income needed to buy a home
- Current standard federal deductions already provide latitude for the essentials such as food
- Arguably, one also also should have a right to one's income needed to a finance a home, without federal taxes
Advantages for Home Owners?
- Each home owner would not pay federal income taxes on income used for mortgage equity payments.
- Initially mortgage payers in the latter stages of paying off their mortgage
benefit most, (since much of their payments in these latter stages
reduce their principal balance and are not currently deductible).
- But for this reason most mortgages would eventually be paid off rather than refinanced, stabilizing the mortgage markets.
- Annual tax deductions from mortgage payments do not change throughout the years of paying off the mortgage, stabilizing home-owner tax burdens.
Costs to government $100 Billion per year lost tax revenues, largely offset ...
- Perhaps ten years after this proposal is adopted, this guess of $100 Billion is based on averages of
- 50 million mortgaged US homes
- income exempted per home: mortgage equity payments of $10,000 per year
- 20% federal income tax loss for the added exempted income
- Lost federal tax revenues from incomes used for mortgage equity payments will be in part offset by increased taxes from recovered economy
- Progressive income taxes on higher incomes, and allowing the Bush tax cuts to expire, would help restore social equity and repair deficits
Are Current Real Estate Prices Fair or Equitable?
- Home prices in most areas are still less than their 2007 levels
- Homes are significantly undervalued, relative to alternatives such as rentals
- In many areas, builders cannot build and sell a new home for its cost due to market undervaluation
What about renters, don't they also deserve a comparable tax break?
- Renting usually does not require continuing investment for improvements and maintenance
- For competitive reasons markets will adjust rental prices downward when ownership becomes more advantageous financially
- Economic insecurity often limits people to renting; improving the economy and jobs helps mitigates financial insecurity
- If mortgage payments become fully deductible, rents are also likely to become deductible, since
- Arguably one should have the right to ones income needed for housing without federal taxes
What about the poor, who can't afford to buy a home?
- A robust economy would support improved safety nets, and restore government programs that help families escape from poverty
- State and local government revenues would be first to recover, with increases in jobs and programs for the poor
Would adopting the proposal create new Bubbles in Real Estate Prices?
- Fully recovering prices for homes is likely to take a decade or so
- Most investors and lenders are much more cautious now about mortgaging and financing homes
- Most of the factors that caused the 2008 financial debacle and the great recession will not be repeated
What about the world economy, and the Euro zone problems?
- America's example in extricating itself will stimulate recoveries elsewhere
- America's recovery will increase consumption of both domestic and foreign products and services, and increase foreign travel
Would this improve the exchange rates in favor of the American dollar?
- Foreign currencies may temporarily become more highly valued, making American products more competitive in global markets
- Many countries would respond with comparable programs to restore their economies, and jobs
- Long term international financial agreements will increasingly restrict flexibility, to stabilize exchange rates
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Recovering the American Economy, and Jobs
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