By Bill Rice
Currently, households taxed at the 33 and 35 percent rate can claim mortgage deductions. However, under the newly proposed Obama Federal budget the deduction would be eliminated for anyone over the 28 percent tax bracket. In the 2009 tax year that would mean those households making more than $208,850 in taxable earnings will not be eligible to claim a mortgage deduction.
The elimination of the mortgage deduction for this income tax bracket seems to tie to the president's campaign promis to increase taxes on households earning over $250,000.
In a statement from the Mortgage Bankers Association, CEO David Kittle says the timing couldn't be worse. "This proposal could have an adverse effect on a market that is already in trouble, and this is not the time to reduce incentives for buying or refinancing a home."
Advocates of eliminating the tax deduction argue that first-time home buyers are rarely at the high-point of their earning potential. Therefore, it will have little impact on the recovery of the housing market.
However, consulting IRS data shows the disincentive may be larger than expected. Lower-income households rarely itemize deductions, so the incentive only applies to the upper two-thirds of income levels. And according to the most recent IRS study, conducted in 2003, 36 percent of those claiming a mortgage deduction had adjusted gross incomes exceeding $100,000.
The National Association of Realtors (NAR) battled a similar Bush proposal in 2005 that would have eliminated the deduction in exchange for a 15 percent tax credit. NAR argued that removing the deduction would directly decrease the value of homes, especially in high-cost areas like California. Some econometric studies demonstrate that the tax beliefs of homeownership add 5 to 7 percent to the value of a home.
Taking away key incentives for those that can afford to own homes seems counterproductive. Meanwhile, the government is considering incentives for lower-income home buying--bringing back seller down payment assistance. A program that is documented by FHA to directly correlate to increased mortgage defaults.
It seems that where the government is placing the incentives on mortgages and housing may make the housing crisis worse.
The Obama administration appears to be agressively battling the mortgage crisis with foreclosure prevention aid packages, while quietly wounding folks that continue to pay their mortgages--the only strength in the mortgage market.
Obama Returns to Message of Hope:
by Bill Rice
Obama brought an enormous agenda to the table in Tuesday's speech. Obama heralded Congress for delivering his economic stimulus package by President's day, but is not ready to stop.
Quickly rattling off the campaign promises that this first piece of legislation satisfied--projected creation of 3.5 million jobs and 95% of working households receiving a tax cut--he moved to set the forward pace. Again, calling for bipartisan support for the next leg of his recovery agenda--acknowledging skepticism that his plan will work.
President Obama reiterated his focus on breaking a "destructive cycle" of tightening credit, shaken confidence, and job loss. His speech set out to explain the governments efforts to re-start lending, prevent foreclosures, and restore confidence in banking. His statements stressed accountability, but warned it would continue to require significant Federal (taxpayer) resources.
In addition, to selling the recent economic stimulus Obama set forth new agenda items. Prefacing his coming budget agenda he outlined three major challenges:health care reform, energy independence, and expansion of education. Adding these priorities to an already swelling legislative agenda and ballooning national deficit, left some asking what isn't onObama's task list.
Obama's promises to continue funding the economic and banking recovery and adding three major budgetary requirements to the mix, drove many analyst to consult their calculators to understand the final promise of the evening--"cut the deficit in half by the end of my first term in office."
However, to prevent debate he announced he had already identified $2 trillion in waste he is looking to slash:
"In this budget, we will end education programs that don't work and end direct payments to large agribusinesses that don't need them. We'll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we're not paying for Cold War-era weapons systems we don't use. We will root out the waste fraud, and abuse in our Medicare program that doesn't make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas."
President Obama left a big agenda behind in the chambers of Congress. The remaining two questions left in most American's mind on Wednesday are: Is it too much? And will it work?
Obama brought an enormous agenda to the table in Tuesday's speech. Obama heralded Congress for delivering his economic stimulus package by President's day, but is not ready to stop.
Quickly rattling off the campaign promises that this first piece of legislation satisfied--projected creation of 3.5 million jobs and 95% of working households receiving a tax cut--he moved to set the forward pace. Again, calling for bipartisan support for the next leg of his recovery agenda--acknowledging skepticism that his plan will work.
President Obama reiterated his focus on breaking a "destructive cycle" of tightening credit, shaken confidence, and job loss. His speech set out to explain the governments efforts to re-start lending, prevent foreclosures, and restore confidence in banking. His statements stressed accountability, but warned it would continue to require significant Federal (taxpayer) resources.
In addition, to selling the recent economic stimulus Obama set forth new agenda items. Prefacing his coming budget agenda he outlined three major challenges:health care reform, energy independence, and expansion of education. Adding these priorities to an already swelling legislative agenda and ballooning national deficit, left some asking what isn't onObama's task list.
Obama's promises to continue funding the economic and banking recovery and adding three major budgetary requirements to the mix, drove many analyst to consult their calculators to understand the final promise of the evening--"cut the deficit in half by the end of my first term in office."
However, to prevent debate he announced he had already identified $2 trillion in waste he is looking to slash:
"In this budget, we will end education programs that don't work and end direct payments to large agribusinesses that don't need them. We'll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we're not paying for Cold War-era weapons systems we don't use. We will root out the waste fraud, and abuse in our Medicare program that doesn't make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas."
President Obama left a big agenda behind in the chambers of Congress. The remaining two questions left in most American's mind on Wednesday are: Is it too much? And will it work?
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