Comments on: Subsidizing Home Ownership

By: Eric Rall (Maniakes)

Eric Rall (Maniakes) — Tue, 02 Dec 2008 22:56:20 +0000

What if you allow the downpayment deduction to be taken over the course of several years? At a 6% interest rate, the principal deduction for the downpayment spread over six yearsÂ just aboutÂ replaces the interest deduction for those years.

Which still leaves you with a problem in years 7-18, when you’ve exhausted the deduction for the downpayment, but principal payments haven’t caught up with interest payments yet. Damn.

I’d need an additional selling point to make this anything like politically viable. Maybe if you turn it into an above-the-line deduction, allowing homeowners to continue to take the standard deduction. But that breaks the revenue-neutral nature of the policy, and I’d prefer net tax cuts be rate reductions rather than expanded deductions.

By: J.A. Eddy

J.A. Eddy — Tue, 02 Dec 2008 21:28:50 +0000

It's a pretty big windmill you're tilting against there. Again, you're talking common sense, but common sense and politics often have very little to do with one another. Most people will see it as "With the interest deduction I can make the payments. With the Principle deduction, I can't." For them, and most politicians, that's the end of the argument. J.A. Eddy's last blog post..?A trillion here, a trillion there and soon you?re talking real money.?

By: Eric Rall (Maniakes)

Eric Rall (Maniakes) — Tue, 02 Dec 2008 21:14:42 +0000

True. Even if you use the downpayment deduction to make a larger downpayment, the first few years’ payments will be quite a bit higher without the interest deduction.

The key to selling this would be to argue that the proposal encourages building equity while the current system discourages it, and by pointing to the current level of foreclosures and short-sales as evidence of the dangers of encouraging people to "own" houses with little or no equity.

By: J.A. Eddy

J.A. Eddy — Tue, 02 Dec 2008 16:24:46 +0000

The down payment deduction is a decent start; however, for most home owners those first ten years or so the checks they mail out are almost all interest and escrow with a small amount going to principal, so you're still raising the bar higher for home ownership, some politicians universally view as a "Bad Thing". J.A. Eddy's last blog post..?A trillion here, a trillion there and soon you?re talking real money.?