Like many deductions it should be eliminated. Almost all of these are regressive in nature. And using the tax code to try and influence spending decisions just ends up slowing the economy as people make inefficient decisions and take longer to figure those decisions out.

Really, it took a study to discover this? I guess if you've never actually done your own taxes this might be shocking, but it comes down to one equation:

You go with which ever is larger, the standard deduction or the itemized deduction.

In my case, as I recall last tax year, the itemized deduction was slightly more than the standard one. But that's more the exception than the rule. I suspect that this tax year will see me revert back to the standard deduction.

People with large interest payments, and/or charitable giving, and/or medical expenses get the biggest bang for the buck.

How about we configure the tax structure to provide income to the government so it can take care of the basic needs that government is required to take, and leave the social engineering to wither and die?

We need to further reduce the amount of money the gov't gets, not eliminate deductions to increase it. It's time to starve the beast into submission.

Our charitable giving is never less than 10% of our income (I "tithe", in ways that help things I find important that help others, not necessarily my local church). I could not do that without the deduction for it. The government does not need to do away with my deductions so they can shell out money to study homosexual grapes growing in inner cities, or whatever stupid study they're found this week.

There was a time back in the mid eighties before the Tax brackets were drastically overhauled where the mortgage interest deduction actually helped the middle class a great deal.

Those days were gone by the 90's.

Unfortunately most people can't do the math to see how little good itemizing does for the average tax payer.

Someone, somewhere told them how great the mortgage interest deduction was (probably a Realtor) and they believe it with no factual basis at all.

My husband and I have been pretty average people. Gross income between 70-130K a year, and we have never been able to itemize for the last twenty years.

My single son gets a small tax break for itemizing but it is no great windfall.

I find the terms "regressive" and "progressive" useful mostly in concealing the true intent of the person originating the discussion of the measure in which they are used. They seem to be curiously flexible of definition.

Momof4,

Starving the beast doesn't really work. No matter what we've done to the tax code For almost 100 years the federal government takes in 20% of GDP. Raise tax rates, they still get 20%. Drop tax rates, still 20%.

What deductions, loopholes, and carveouts seem to do is make who pays the tax more uneven. Instead of everyone paying 20% you end up with 1% of us paying 40-50% and 40% of us paying 5%. And those lumps are not based on total income. You have people who make millions of dollars paying 5% while you have people making ~$100k paying 40%. It really depends on how you made that income and how educated you are about sheltering that income.

One issue with this is corruption. The higher the tax rate and the more unequally it is levied the more valuable those deductions become. This leads to people essentially buying tax breaks from government officials. The mortgage deduction is not unique. Most deductions go to high income people.

Another issue is income stability. When you try to force a small number of people to pay for everything your government is dependent on those people doing well. When everyone pays a similar share you are less dependent on individual circumstances. This is a classic problem with progressive tax structure (like the income tax). When recessions hit since only the top 1-10% of earners pay for the government losing those earners (through retirement, layoffs, of poor business opportunities) severely impacts state revenues. The reverse is also true, when times are good those people tend to do very well and state incomes do as well. Unfortunately government budgets tend to be based on best case scenarios. So when you have highly volatile government revenue you have very large government growth. (It grows really fast in the good times and just borrows to pay for itself through the bad times).

So large deductions can actually lead to faster growth of government.

For Rad, a dictionary of economic terms.

Regressive
1. Writer doesn't like this.
2. Tax rate varies less between people. (Subjective term. Must be compared to something else.)

Progressive
1. Opposite of regressive.

As a bonus:
Rich
Note, heavily context dependent.

Context: When discussing tax rates
Anyone with an income over 50% of local median.
Examples: Tax cuts for the rich. The rich need to pay their fair share.

Context: When discussing spending
Anyone with an income over 300% of local median.

Context: Self identifying
Typically anyone with an unearned income (e.g. dividends) over 300% of local median.

Context: Statistical
Top income quintile (e.g. top 20% of earners).

Poor
Opposite of rich

Middle Class
Everyone

I don't think you want to know what adult, youth, or child mean.

Isab; I'm like you when it comes to itemizing; but, with one difference - I haven't itemized ever!

So, every time some tries to sells me on something by stating that it is tax deductible; or most likely a manager tries to tell me to deduct my expenses on my taxes I just get so pissed at them for assuming that they know more about how to file MY taxes then I do.

every time some tries to sells me on something by stating that it is tax deductible; or most likely a manager tries to tell me to deduct my expenses on my taxes I just get so pissed at them for assuming that they know more about how to file MY taxes then I do.

Posted by: charles at November 28, 2015 8:20 PM

I understand how furious you are.

I used to feel that way when someone spewed out the conventional wisdom that married people get a tax break.

people with dependents get a tax break. Married people actually pay more than two single people would who each earned half of the combined income of a typical married couple.

Now I don't get mad anymore. Doesn't pay when you are drowning in a sea of innumerates.

I see it slightly worse.

I live in an area with high housing costs. If it weren't for the deduction, I'd not be a homeowner DESPITE a "high" (by national-level standards) income. For the area, we're solidly low/mid "middle income" (even if that's not what the national tax brackets would have you believe).

That said, the amount of help it provides decreases every year (both with having less interest to deduct AND with the increase in the standard deduction). So, it certainly helped get us INTO house, but it has little staying power.

So, in some areas, it helps prop up the real estate market by making things more affordable, which just makes thing more expensive in the long run. As a homeowner, I like it when my house's value goes up, but I am not short sighted - it comes with costs - including higher taxes and an overall less affordable area for buyers if I ever want to sell.

Everyone, please get over this nonsense about deductions being a "tax subsidy." You can only think that if you come from the mind-set that the government owns everything in the first place.

It is fine if you want to go with a flat-tax and no deductions. But, the mortgage interest deduction is not a bad thing. It actually makes perfect sense.

Remember, consumer interest used to be deductible too. Eliminating that interest deduction led us to all kinds of debt consolidation mortgages.

But, why should interest be deductible? Because the loan is excluded. When you borrow $200,000.00 to buy a house, that is not taxed. Why? Because you have to pay it back. If I lend you $200,000.00, do I get to deduct it? No, because you have to pay me back. Interest is the costs of that loan. You pay me interest on that $200,00.00 and that is income to me. Why should that carrying cost of a loan (that was not income to you) not be deductible. Essentially, that interest payment gets taxed twice. You don't get to deduct it, so you pay a tax on that money, and it is income to me, so I have to pay tax on it too.

(Arguably, we should go back to allowing a deduction for consumer interest, too.)

Like I said, if you are for a flat tax, fine, but, if not, don't be fooled by talk of the mortgage interest deduction. You are likely listening to someone who has not thought much about it.

-Jut

I can equally make this an argument for eliminating the standard deduction. *If* (and that's a big if) you want to use the tax code to encourage certain types of economic activity, the standard deduction works against that. And, frankly it makes filing taxes too easy; it becomes a check-the-box activity for most people, and then they aren't really cognizant of what they are really paying taxes on. It would be interesting if both the standard deduction and the deduction for tax preparer fees were eliminated. Do your own taxes, guys and gals, and see what you've voted for.

Eventually the mortgage interest deduction will have to go, as part of an overall drastic overhaul of the tax system. I'm completely opposed to eliminating it just to increase revenue or for economic-jealousy reasons.

I don't expect eliminating the mortgage deduction or even the state tax deduction to result in more income for the federal government. As I said, the fed gets ~20% of GDP no matter what. Eliminating these deductions would shift who pays that 20% and how people act.

I support eliminating deductions because it evens the tax burden out and stabilizes tax revenues. It also reduces the cost of compliance.