As a CPA I would like to comment on the discussions. Since Mr. Trainor is a
GOP candidate I think it is relevant to Minneapolis voters that they get the
accurate facts with which to make their decisions and that their
elected(potentially) officials are held to a high degree of accuracy in
their statements.
"This federal housing subsidy provides the most benefits to the most
well-to-do homeowners (there >is an upper limit) who have the most expensive
homes (or two).
""I disagree completely, unless you're of the opinion that an annual salary
of $33K is where "well-to-do" homeowners' incomes start. Both my mother, a
retired homemaker living on her late husband's pension, and myself, a
lower-echelon salaryman for a local bank, benefit greatly from being able to
deduct our mortgage interest from our Federal (and, by extension, state)
income when tax time rolls around.
The home mortgage deduction absolutely does provide more benefit (in terms
of actual dollars) to people of greater income levels. For example holding
the mortgage interest amount equal, a person in the 34% bracket receives a
more valuable deduction than a person in the 15% bracket. This is due to
the simple mechanics of the tax rate system. This does not mean that people
of more modest income levels don't benefit, just that they don't receive the
same amount of benefit as their wealthier counterparts.
""By the way, a tax credit is not the same as a subsidy. The credit allows
you to keep more of your own money. The subsidy reaches into somebody else's
pocket and gives you their money. Big difference. ""
A tax DEDUCTION is also very different from a tax CREDIT. I assume you
meant the home mortgage interest DEDUCTION rather than credit (since there
is none) - However, both Deductions and Credits are a form of
subsidization. They are essentially direct payments from the government to
individuals and corporations that enter into certain economic activities.
Let's assume that there are two people each earning $50,000. One rents a
house and one owns an average house in the metro area and has a $160,000
mortgage at 7.25% and Real Estate Taxes of $1,200. Let's also say that the
renter's rent equals the homeowners mortgage.
Under current tax law:
The renter will pay $8,327 in federal tax and $2,691 for a total of
$11,016
The homeowner will pay $5,467 in federal tax and $2,106 for a total
of $7,573
I would be glad to provide my calculations to anyone who asks.
That is a difference of $3,443 that the homeowner gets that the renter
doesn't. Everything else about these two people is exactly the same. To
say that this isn't a subsidy is absurd. After all, we could just have both
of these people pay the same tax (a fair system) and then have a Federal
Housing Administration write a check to the homeowner for the $3,000 or so)
Then it would qualify as a subsidy under your definition. Either way the
economics of the situation haven't changed.
I would argue that the rule itself has a good purpose and works to promote
homeownership through debt-financing but it is clearly a subsidy even if
indirectly.
>This subsidy is many many times the amount provided >for all types of
federal housing assistance >for low and moderate income people. (Sorry I
don't >have time to look up the numbers) .
This is quite true the subsidy/deduction results in $95 billion dollars a
year (Lazare "Undeclared War" 2001) of federal tax dollars not collected
from homeowners that would be collected from their renting counterparts as
in my above example.
>>You'll have to excuse me if I don't accept you at your word, then,
especially since you don't seem to be able to distinguish between a subsidy
and a tax credit.
Again this is NOT a Tax Credit we are discussing. Please try to make the
correct distinction in the future.
>Homeownership has many positive impacts upon the >community, but owners
build equity and get >appreciation - PLUS a big subsidy from renters >and
all taxpayers.
>>You make it sound like I (and my fellow homeowners) are walking around
Phillips waving our property deeds under the noses of our poor neighbors who
rent, demanding that they fork out their hard-earned dollars, which is just
plain silly. People buy houses for many reasons, but reaping the huge
rewards of the tax breaks </sarcasm> isn't one of them unless they're unable
to do the simple math required to fill out a 1040 long form. In my case, I
bought a house for my family because renting a two-bedroom apartment in the
early 1980s was a lot more expensive than buying a house, and offered no
prospect of a return on equity.
If people buy houses for other reasons then, we should do away with giving
them an additional economic incentive. However, the tax implications do
factor into people's decision making, this is part of why it may be cheaper
to own.
Additionally, under the current law, you don't pay tax on any gain on the
sale of your house so long as your gain is below $250,000 and a few other
simple requirements are met. If I invest in pretty much anything else and I
have gain, I pay taxes. Again this is a subsidy to homeowners. Had a
person invested in stock and had the same financial gain, he/she would pay
far more tax than the person who bought a home.
>>If you want to talk about subsidies, you should take a closer look at the
Property Tax Refund program here in Minnesota. Apartment dwellers pay the
property taxes at the commercial rate through their rents, but get the taxes
rebated to them at the homestead rate - adjusted for income, so that it is
possible to recover more than you paid in.
A reason this system exists is because homeowners also get to deduct their
real estate taxes (in addition to their mortgage interest) and therefore pay
a lower effective tax rate than renters. Also the dollar numbers don't even
compare to the federal deductions.
Thanks,
Nick Frank
Central / North Loop
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