My Personal Finance Journey

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Are You Subsidizing Tax Breaks For The Rich?

Contributed by mm | September 11, 2004 7:08 AM PST

Scott Burns at MSN Money is concluding that the idea of encouraging homeownership with tax deductions is no longer working. How so? For most Mid-America homeowners, the average home price makes it is near to impossible to claim any tax benefit from mortgage interest and property tax payment. (Did your realtor sell you the idea of tax deduction? Read A Home's Real Tax Savings -- your tax dollars will only see the help if your mortgage interest and property tax payment exceed some pretty high annual threshold.)

One of Scott's readers vented his anger in this quote: "To my way of thinking, I am subsidizing wealthy homeowners in Texas and folks in places like L.A., San Francisco and Boston. Every dollar they write off their federal income tax has to be replaced, and homeowners like me are paying for it."

Can we say this is another example of class warfare? I only receive around $1,000 tax benefit from housing expenses so I'm a relatively unbiased observer in this debate. I hardly think it's unfair to the Mid-America houseowners.

First, the coastal homeowners need to pay much higher mortgage interest and property tax to see the tax benefits. As Suze Orman put it in a blunt way, "[i]f you are in the 30 percent tax bracket each dollar you pay in interest is only going to “save” you 30 cents. So let’s do the math together: that means you are still spending 70 cents to save 30 cents. Please explain to me what is so great about that." I don't very much recommend Suze Orman, but her above comment is right on target; potential tax benefits should not be a reason for a bigger house.

Second, if richer people take advantage of some tax benefits while you cannot, they are paying more tax than you, too. As a matter of fact, according to this summary from Tax Foundation, the top 5% taxpayers contribute more than 50% of the income tax payment. Spend a minute to read this mind-opening fable at Boone Report and one will never complain about such poor-to-rich subsidy.

Third, do not forget the poorer has many tax breakers that richer relatives cannot be eligible too. Not to mention many tax breaks or retirement savings fade out at certain income levels, do you know if one earns less than $30,000 or so (depending on family status), one can also get a kickback from the Big Brother on social security tax payments? This Earned Income Tax Credit (EITC) at least makes me very jealous.

This Post Has Received 1 Comment. Share Your Opinions Too.


Ryan Commented on May 4, 2006

Even referencing Suze Orman lowers your credibility. How much tax deduction do you get from renting? Im not the idiot thinking my owner occupied house is an "asset", but your argument there is flawed.


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