Submitted by smurfyjenkins t3_y9veul in science
Reply to comment by forebill in Many countries have a "hidden welfare state" for incumbent homeowners, as governments subsidize homeowners through the tax system. The homeownership welfare state is strongest in the US and other Anglophone countries, but weakest in the Scandinavian countries. by smurfyjenkins
Tax breaks are often used as subsidies. This is not unique to mortgage interest.
>A business is not taxed on its expenses, only on profit. Does this make a business the beneficiary of a hidden welfare state?
As an individual taxpayer, I can deduct mortgage interest, but I cannot deduct food, clothing, utilities, or most other expenses (or rent, for that matter). Why single out mortgage interest among all the expenses we have?
>, but I cannot deduct food, clothing, utilities, or most other expenses
Actually, the hurdle to itemization is getting past the standard deduction. A lot of those expenses CAN be deducted if they are related to a job, or maintenance of your home. So, if there is a dress standard at work such as business casual your clothing expenses for work can be deducted. If you go out of pocket for food while traveling for work . . . I need safety boots for work, and am required to do continuing education. So on and so forth.
If I make some inquiries about investments while on a trip, some of those trip expenses can be deducted. For instance, if I'm interested in real-estate investing in an area I travel to . . .
The interest on the mortgage get most people over that hurdle and opens up many more deductions most are not aware of because they fint make sense until the mortgage gets them there.
>Tax breaks are often used as subsidies.
But what is this subsidizing? It's much more beneficial to the financial industry than it is to individual home purchasers. If this "welfare" didn't exist and serious blow would be delivered to that sector of the economy. And we saw in 2008 how much Trickle Down has made the entire economy dependent upon that.
Yes, business expenses broadly can be deducted as non-income. Mortgage interest is not a business expense; it gets special treatment that rent doesn't get. That's the whole point here.
All subsidies benefit both the buyer and the seller; the mortgage interest tax deduction is not unique there. I think the financial industry would survive just fine without this subsidy (and I'm very surprised to see corporate welfare being touted as a benefit to promote the mortgage interest tax deduction!).
The subprime mortgage crisis didn't happen because the banks weren't profitable enough; the financial system was destabilized by banks turning out to be insolvent due to years of accumulating toxic assets, meaning a sudden loss of confidence in the system.
>The subprime mortgage crisis didn't happen because the banks weren't profitable enough; the financial system was destabilized by banks turning out to be insolvent due to years of accumulating toxic assets, meaning a sudden loss of confidence in the system.
I'm pretty well aware of what happened. It's the consolidation of the banking system along with the removal of regulations on the types of investments they could be involved with that led to the crisis. (Along with lack of oversight.) If you know anything about how accounting works then you know that loans are capital for a bank. A bank cannot sell debt without income from existing loans. The toxic debt was a result of the subprime loans. The loans default and the bank can no longer service the debt right? You see you can stop condescending now.
>(and I'm very surprised to see corporate welfare being touted as a benefit to promote the mortgage interest tax deduction!).
My point is that I don't feel the "subsidy" exists solely for homeowners. I'm wasn't touting it, I was shining an alternative light upon it.
The fact remains that as a result of Trickle Down there are fewer and fewer pathways to building wealth other than real estate for those that start out life without any capital. The tax vantage of being able to deduct interest helps drive demand for home ownership. This demand increases the wealth of the owner. Removing that deduction would essentially be removing wealth from the middle class, and that is the ultimate negative impact of Supply Side or Trickle Down policy. History has demonstrated repeatedly that this is terrible policy.
Lastly, and back to my first point, a subsidy or "welfare" is a gift of money. Not taking as much of my income is not a gift. I've still done my part for the economy to have earned that money in the first place. The government is not printing money and awarding it to homeowners, it is simply not taking as much from the economy. You could just as easily say that not allowing rent to be deducted is a penalty for poor economic performance. What is the difference?
Not charging you as much tax as someone else with the same income is logically a form of subsidy. When we let people deduct childcare expenses, we are subsidizing parents. When we let people deduct medical expenses, we are subsidizing health. By allowing people to deduct student loan expenses, we are subsidizing higher education.
I'm not going to say that any of those are a bad thing, but they are certainly a thing easily distinguished from deductions for work-related/business expenses.
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