Yes, Homeowners Really Will Get Hosed by the Republican Tax Plan By Jordan Weissmann – Philip Sears/Reuters


The tree is a metaphor. Philip Sears/Reuters

The tree is a metaphor.
Philip Sears/Reuters

On Wednesday, I published a piece arguing that the Republican tax plan would hurt home values by effectively killing off the mortgage interest deduction for middle-class families. A few readers have suggested that might not be such an awful policy move. So I want to elaborate on why it is.

To quickly review, the Republican tax blueprint that Paul Ryan rolled out this past summer calls for simplifying the IRS code by eliminating a number of breaks and nearly doubling the standard deduction to $24,000 for joint filers. Technically, the plan would keep the mortgage interest deduction in place. But with such a high standard deduction, very few people would choose to itemize. That would kill the tax advantage of having a mortgage, leading home prices to fall. People who paid more than $24,000 a year in mortgage interest would still get some benefit from the deduction, meaning that the luxury housing market would be comparatively unaffected.

I find this pretty terribly misguided. The mortgage interest deduction is a deeply flawed piece of policy that has inflated housing prices without expanding ownership much if at all and should be reformed. But doing it in a way that swiftly penalizes middle- and upper-middle-income homeowners while leaving the wealthy relatively unscathed isn’t the way to approach the task.

I’ve seen a few points raised in response. I’d like to address three in particular.

First, some people have suggested that the House plan would still be net positive to homeowners. If house prices drop, but middle-class families get a tax cut from the higher standard deduction, aren’t they better off?

Not necessarily. The Tax Policy Center estimates that under the comprehensive House plan—which, to be fair, is just a preliminary sketch—the bottom 80 percent of households would see a less than 1 percent increase in their after-tax income. For a family in the fourth quintile, you’re talking about a $410 annual bump.

Article continues:

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s