On the political front, there are several unpopular opinions that I hold, and will share with you. These may be shocking, but chest la vie.
Nuke the Mortgage Deduction
So much of US policy is focused around tax expenditures. In a nutshell, these are statutes that reduce how much tax the Treasury collects. While it isn’t “spending” in the classic sense, it is “spending” that affects the budget and the polity.
Top of the list is the Mortgage Deduction. Originally enacted to encourage home ownership, and to provide tangible benefits to families who save up, make a down payment, and hold a mortgage on a piece of real property (aka a “Home”) and then the ability to deduct the interest payments to the bank from their taxes.
This works/worked because most people do not have enough deductions to trigger the benefit of itemization of their deductions, and thus take the standard deduction. Holding a mortgage though, and the deductibility of the interest payments pretty much guarantees that you will have a lower net taxable income if you hold a mortgage.
Conceptually, this is great, and if you are in the middle class, and have a mortgage, you will likely benefit.
But your benefit isn’t as much as you think it is, and those who really benefit are - you guessed it - the wealthy. Those who have multiple homes, who can afford giant mortgages, and will often buy additional properties to help increase the benefit of the deduction.
Don’t get me wrong, home ownership is great, and you feel good having a piece of real property that you can one day own free and clear (well, except for property taxes that is). But it also means that you are responsible for upkeep, maintenance, and compliance with any HOA policies.
It also makes it more difficult to move to pursue your career. If you can’t find a job in your field where you live, often you need to move, and having a house to sell before being able to move makes you less competitive.
Then there is the $600B a year in forgone revenue collection by the IRS. That hurts the ability of the US to fund needed programs.
The reality is that most families would be better off with a larger standard deduction, (which, by the way, the tax cuts of 2017 delivered), and no mortgage interest deduction. It would also prevent high income earners from gaming the system by buying more, and bigger properties, that would reduce the froth in real estate (especially where I live, in San Jose, CA) and lead to a market that is less crazy.
Renting should not be demonized
Ad after ad, pol after pol, article after article, all heavily slanted towards owning your home, and you would be excused for believing that buying a home, with a 30 year mortgage is a god given right, and that if you are a renter, you are one of “them” (whomever that implies.)
But renting isn’t a bad thing. Not only when you are young, and still finding your way through the world, but in general. There are many benefits:
- You don’t have to worry about repairs and upkeep. The water heater fails? Call the landlord. Plumbing failure? Landlord again.
- You can move when you need to. No longer are you tied to a location because you have a house that you need to sell.
- Real Estate, while it is a safe-ish investment, isn’t always an appreciating asset (c.f. Global Financial Crisis in 2009)
- If you have a good landlord, life renting is pleasant.
- If you are a good tenant, landlords are glad to have you, and will help you stay.
Renting may not be chic, but it isn’t a terrible situation. I get how it feels to “own” your home, and to have pride. But I also remember the time I had a dripping faucet in the master bath, and it took 4 trips to Lowes, and finally a call to a plumber to fix all the points of failure in my simple “replace the valve” repair.
There are downsides. The mortgage deduction (see above) coupled with additional tax advantages showered on landlords, added to the inflation in property values that this drives leads to rents being higher than they should be, in all markets, especially in hot spots where high value tech workers tend to congregate (Silicon Valley, Manhattan, Boston) to drive rents through the roof (I just read about a “bargain” 750 sqft studio in Manhattan renting for $3,700 a month) and make them unattainable.
But we, as a society, should work to destigmatize renting. It does make for a more nimble workforce, and provides families with flexibility.
Note: There are a lot of bad landlords, and if you peruse some boards on Redit and the like, you will see ample exemplars of shitty human beings who exploit and abuse their tenants.
And really, a lot of the real estate investor tax incentives need to be pared back. That is one business that you can make a lot of money while - on paper - losing money in the eyes of the tax man, taking advantage of the system. c.f. The Trump Organization.
The first of many “unpopular opinion” posts. I think I will write about Prop 13, and the property tax inequities here in California soon as well.