Ending The Mortgage Interest Deduction - What Will This Mean To The Economy?

Ending the mortgage interest deduction is one way for the federal
government to get more of the taxpayer's money and lower their
deficit. At least, this is what the Obama administration seems to
think. However, the question is; will this work? Of course, the answer
to this is no. Raising taxes never produces more revenue to the
government. The second question is; will ending the mortgage interest
deduction hurt the economy? In this article, we will discuss this
question.One lesson many politicians have yet to learn is raising
taxes generally slows down the economy. As the economy slows, fewer
tax dollars are paid to the government. The reverse is often true.
Lowering the tax rate stimulates the economy and because more people
are working and those already with jobs have increased opportunities,
more money flows toward the government.Taxes are about more than
MoneyThe fact lowering taxes stimulates the economy is more than a
philosophy, it has been proven to work on many occasions. So, it seems
the argument for higher taxes is an argument in favor of stronger
government control. This however, is slightly off the topic of tax
deductions and so, will be left to discuss on another day.At 4%, it
isn't so badAt first, ending the mortgage interest deduction would
probably not hurt the economy very much. With mortgage rates hovering
around 4%, monthly interest rates paid on these mortgages are not
terribly high. For instance, a person with a $200,000 mortgage over 30
years at 4% will pay $667.67 interest on his first payment. Interest
rates on mortgages become a little smaller each month. The second
interest payment on the same mortgage is $665.71 and the 25th payment,
or the first payment of the third year, is $642.71.The interest paid
for the first year of this mortgage will be $7,935.49. So, this will
be a $7,935.49 tax deduction this family will lose if the interest
rate deduction is eliminated. For most families paying about an
average of 20% federal income tax this would amount to about $1,600
less they would have in their pockets. This, of course, is terrible.
Plain and simple it is a tax increase working families do not need.
However, it amounts to a little over $130 a month this family will
have stolen from them but it is an amount most people could survive
losing.At 11% it could be Devastating!The nefarious part of this tax
deduction annihilation plan is this: it seems the present
administration is on a mission to increase interest rates. The casual
observer comes to this conclusion when he sees the government rapidly
printing more money in order to pay down the debt. This is another way
to create inflation. So, what does this mean to ordinary working
families and the economy in general?If mortgage interest rates were
11%; as they will likely be in the coming inflationary economic cycle,
a family with a $200,000 mortgage for 30 years at 11% would pay
$21,955.49 in taxes for the first year of their mortgage. If this
family is paying a combined income tax of 20% it would mean they will
have had $4,200 confiscated from their tax return.This would put this
family's budget into a $350 monthly deficit, or possibly a $350 larger
deficit. Many families could not survive this for very long. Moreover,
fewer people would be able to qualify for a mortgage using the newly
constructed parameters ending the tax deduction would define.At first
glance, it looks like it would be a big mistake if our government took
away our mortgage interest deduction. However, it seems very unlikely
our leaders know any less about the economy than I do. Therefore,
there must be a different motivation for their actions. What this
motivation is, I cannot figure out.