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Will the mortgage interest deduction be cut to avoid the fiscal cliff?

As the fiscal cliff negotiations tighten, the mortgage interest deduction is being debated – will it stay, or will it go in an effort to slash the federal budget?

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College Debt and Housing

mortgage interest deduction

Americans prefer the mortgage interest deduction to charity

Americans would be more willing to give up the tax deduction for charitable giving than some other popular tax breaks, including the one for the interest on their home mortgages, a new Christian Science Monitor/TIPP survey reports, with details arriving as President Obama and congressional lawmakers bargain over ways to reduce future federal deficits, while avoiding a “fiscal cliff” of scheduled tax hikes that could have a massively negative impact on the economy.

The new survey results back up the National Association of Realtors’ (NAR’s) claims that consumers want to preserve the mortgage interest deductions, calling it “one of the middle class’s key incentives for wealth-building,” meanwhile the trade group acknowledges that there is a divide between homeowners and economists alongside politicians who believe the mortgage interest deduction should be cut as part of a shrunken federal budget.

NAR addressed this divide by highlighting The Diane Rehm Show on NPR which showcased various economists to examine the mortgage interest deduction in context of the fiscal cliff debate. Some economists asserted an overall cap should be implemented on itemized deductions, another said the mortgage interest deduction should be transitioned over a ten year period to a flat credit, while NAR Chief Economist Dr. Lawrence Yun said that eliminating the mortgage interest deduction “could greatly destabilize the economy.”

“Some economists argue that the mortgage interest deduction is holding back economic growth,” Dr. Yun said, adding, “I would argue the other way, that homeownership provides incentive for people to work hard when thinking the long-term vision.”

But didn’t eliminating the MID in England work?

During the radio show, England was used as an example supporting the elimination of the mortgage interest deduction, as the nation phased out their version of the deduction over several years, with little impact on home values.

Dr. Yun said that the comparison is misleading, because England had an acute shortage of market housing and values would have gone up no matter what simply on the basis of supply and demand. “Housing start activity in England was much lower in proportionately compared to the U.S.,” Yun said. It “was just a supply restriction that occurred in England.”

You can’t just look at one side of the ledger

One man that called into the show said, that phasing out mortgage interest deductions just looks at one side of the debate budget and misses the impact it will have on the middle class. “You’re doing everything right, saving for college, paying life insurance, etc., you start phasing out your tax benefits,” he said. “You’re absolutely killing the middle class… You can’t—it just—you can’t look at one side of the ledger.”

On Fox Business today, Dr. Jed Kolko, Chief Economist at Trulia summarized the potential destiny of the mortgage interest deduction as all options are on the table during fiscal cliff negotiations. Dr. Kolko notes that elimination of the mortgage interest deduction would actually be most harmful to homeowners in the earlier years of their mortgage.

Two economists from the National Association of Realtors address in the following video the full historical context regarding the mortgage interest deductions, and how we got to this point as a nation:

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4 Comments

4 Comments

  1. Derec Shuler

    December 11, 2012 at 6:32 pm

    This definitely hits the middle class the administration has vowed to protect. Many people can’t afford their homes without the MID and the government should not be changing the rules for people with existing mortgages.

  2. Susan Rogers

    December 11, 2012 at 7:12 pm

    If the standard deduction is raised to $15,000 which was another part of the Bowles Simpson plan, then most of the middle class would not be able to take the mortgage interest deduction anyway, so it’s more hype than reality. If the standard deduction is not raised, then yes, we need to keep mortgage interest.

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Economic News

How small businesses can keep up with the changing workforce

(ECONOMIC) Trade schools are booming as career outlook grows. College enrollment is down. The workforce is changing. How can small business keep up?

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Trade employees in the workforce

College enrollment has dropped off by three million in the last decade, with a drop-off of one million due in the last several years as a direct side effect of the Covid-19 pandemic. This phenomenon clearly does not bode well for the future of the United States’ economy and workforce, with students who attend low-income schools and come from low-income families being the most affected. These changes are disproportionately affecting students from low-income schools and families, the very people who need higher education the most, and are erasing much of the work done in the last decade to help close the income and race gap between students, colleges, and socioeconomic backgrounds.

Enrollment in trade schools is skyrocketing.

Recently, trade schools have seen a 40% bump in enrollment across the board. Many students are enticed by the fact that trade schools are affordable and offer a quick turnaround, with students paying $16,000 or less for their program, and their training taking a year or less to complete. Beyond that, those who complete trade school is all but guaranteed a job on graduation day. Their earning potential is often two or even three times higher than the initial cost of attending the program. As many have found, the same cannot always be said about those who pursue a college education.

While the average cost of college at an in-state and public institution hovers at around $28,775 per year (according to Forbes) and takes an average of four years to complete means that trade students have a cheaper educational cost, (between $16,000 to $33,000 for the entire program, or about equal to just one year of a public college tuition) can get work in their field more quickly, and can usually make more than their educational costs in their first year on the job. Tradespeople make an average of $54,000 fresh out of trade school, which rivals the role average college student’s first salary of $55,000. It’s no wonder so many people are choosing to forgo a formal education for trade school!

The almost insurmountable cost of college combined with ever-growing inflation and a lengthy list of requirements just to get a post-college job, all for a low salary and with students having hefty loans to pay back, also play a key role in the downturn in the popularity of college.

The implication of fewer college-educated people, however, means that over time, the United States as a whole could face an economic downturn, as it gives rise to many more blue-collar workers. This can irrevocably alter the makeup of the workforce. Despite current unemployment rates being among the lowest they’ve ever been, the American people are already starting to see a shift in the labor market.

Already, we see a strain in the labor market when 25% of skilled workers in the U.S. exited the workforce following the Covid-19 pandemic. The economy has become so highly specialized that if the U.S. were to keep up the trend of losing college-educated workers, there could irreversible damage to the United States’ economy, deepening the ever-growing divide between the middle class and the working class, further reducing the ability to affect the global economy, knocking the United States out of the classification of a “global superpower.” To make matters worse, much of the United States labor pool is outsourced, and we are seeing the rise of artificial intelligence and robotics taking over many jobs, especially minimum wage jobs. While none of these factors alone vastly affect the U.S. labor market, this is only the tip of the iceberg.

So what can employers do when the makeup of the workforce starts to shift?

Employers could shift the focus on the years of experience rather than the type of education the potential employees have, as well as offering more extensive on-the-job training, which is already commonplace in some industries. Even for those with a college education, the requirements for entry-level jobs seldom match the salary, with many employers requiring a four-year degree, two or more years of experience, and fluency in different programs which vary from company to company. Employers, if possible, need to offer higher salaries with fewer requirements, as many young people are finding the pursuit of college, plus the various other requirements just to be considered for a barely above minimum wage job, while they’re drowning in student debt fruitless, so they forgo college altogether.

A post-pandemic society looks vastly different, and employers must adapt to keep up.

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Economic News

Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

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Older man pictured in cafe with laptop nearby representing boomers retirement discrimination.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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