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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?



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:

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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  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

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?



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…

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.



young executives

job openings

Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.


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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.



gas tax


Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.


Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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