The mortgage interest deduction not about mortgages at all?
I'd always taken it as obvious that the mortgage interest deduction was policy Congress put in place specifically to encourage home ownership. But Barry Ritholtz says that's not true at all. Instead, it's a holdover from decisions made to soften the blow of the very first income tax.
As an offset for the taxes, any interest paid (for any reason) was deducted. These were considered business expenses. Indeed, taxes on rents from real estate was a large revenue source. The financing costs of purchasing such rent producing property — a/k/a interest payments — was an ordinary cost of doing business, and hence, deductible.
Keep in mind that during the pre-WW1 period, there was very little interest expenses paid by individuals. Home owners typically owned their houses outright (except for farmers, who either financed or leased the land). There were no credit cards, HELOCs, revolving credit, or student loans.
The deduction on interest was never intended to be a salve to the middle class. It was not designed to encourage home ownership. Indeed, when the interest rate deduction was first considered, home financing was non-existent, and home ownership was not thought of as a public policy. It is not part of any grand scheme of social engineering, as some have called it. It simply has existed since the Federal Income tax came about a century ago.
Indeed, the entire home mortgage deduction is little more than a historical anachronism, a carry over from when all interest payments were deductible.
Posted by: pjro | August 31, 2010 12:39 PM | Report abuse
Posted by: popopo | August 31, 2010 12:42 PM | Report abuse
Posted by: uberblonde1 | August 31, 2010 12:45 PM | Report abuse
Posted by: jpeg | August 31, 2010 1:38 PM | Report abuse
Posted by: Mimikatz | August 31, 2010 1:41 PM | Report abuse
Posted by: Athena_news | August 31, 2010 2:45 PM | Report abuse
Posted by: garseea | August 31, 2010 7:52 PM | Report abuse