Comment by gosub100
2 years ago
While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
Fwiw I don't really care what the technical reason is, it's a rhetorical question to add to the ways the credit system holds back the poor.
You used to be able to deduct any consumer debt. But that stopped in 1986. The reason was "Congress believed deductions for personal interest encouraged people to consume and stifle savings."
https://www.telegram.com/story/news/local/worcester/2007/03/...
There used to be mostly piddling deductions for all sorts of things that you don't have today. It's probably mostly a positive to not keep track of things like sales tax in order to minimize your income tax.
Deductions also cause people to go temporarily insane - it’s fine paying 5% unnecessarily because I get 2% back on my taxes! Ignore the 3% that is gone forever …
Sales tax deduction still exists. 2017 law temporarily lowered but didn't eliminate it.
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Even then I’m not sure how much it affected the poorer people, since you still had to overcome the standard deduction (lower, sure).
The deduction on mortgage interest now mostly only affects the well-off because the standard deduction for married filing jointly is so high.
The the 1980s the deduction for mortgage interest would have been significant, I suspect most people itemized then. And the huge standard deductions we have now are a fairly recent tax change.
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Which is kinda stupid, when the economy is based on people consuming.
I guess Reagan's friends at that point wanted more money for Wall Street to gamble.
> encouraged people to consume and stifle savings
Ironic in hindsight; every monetary and fiscal policy as of late seems to be designed to punish savers and reward debtors.
Hard to extract profit from the fiscally responsible.
To a first approximation, no one actually takes advantage of the mortgage tax deduction any more because the standard deduction is so high and the cap on state tax/property taxes is so low that most people don’t itemize.
Only about 10% itemize.
https://www.taxpolicycenter.org/briefing-book/what-are-itemi....
And the majority of those make more than $500K. The deductions are probably mostly some combination of mortgages on very expensive properties or very large charitable contributions, probably often tax-shielded in some manner.
You can’t deduct interest on personal income tax for mortgages over $750,000, so it seems somewhat unlikely that such deductions make up any significant amount of the deductions: https://www.irs.gov/publications/p936#en_US_2023_publink1000...
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It was! Auto leases were deductible too which was a big subsidy for the auto industry.
Once rich people figured out how to get poor people to be angry about things like higher marginal tax rates for rich people and “death taxes”, we raised taxes on the suckers to benefit the richer people.
> While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
AFAIK it's a carve out specifically for houses. Car loan interest isn't deductible despite being "secured".
It's a bargaining chip to get votes. If one party promises a larger tax saving on homes, then homeowners are more likely to vote for them.
Besides that, there may be some societal benefits to increased home ownership.
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Granting a tax credit for something encourages that thing. So, from that perspective, I think it makes some sense to grant a tax credit for mortgage interest but not credit card debt.
Tax credit for mortgage interest encourages speculative investment in the housing market. Tax credit for credit card debt encourages consumer economic activity.
you have to live somewhere.
maybe you rent, but renters DGAF about the local community the way that homeowners do.
home (property) taxes also fund a lot local services, schools, etc. you want prices higher and stable, and not dominated too heavily by mega-corps that will weasel out of paying said taxes.
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Though one can write off losses from gambling in the US.
I wish the tax code had more a more positive slant per your point, but lobbying seems to be a bigger driver.
Pretty sure you can only write off gambling losses to offset gambling winnings, which entirely makes sense. That way you only pay taxes on your net winnings for the year.
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HELOC debt is (since 2017 TCJA) now only deductible if used to purchase or upgrade/repair the house. And now the vast majority of people are not going to be deducting any mortgage or HELOC debt anyway, since the standard deduction is so high now.
> While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
HELOC interest is rarely deductible either. First, you now must be able to itemize deductions, which the recent tax changes have made very unlikely. Less than 12% of tax returns are able to itemize:
https://www.irs.gov/pub/irs-soi/soi-a-inpre-id2303.pdf
In addition, even if you are in that ~11% who can itemize, HELOC interest is only deductible if you use it to work on the same house being used to get the LOC. Any other use is not deductible.
> the ways the credit system holds back the poor
It would be good to understand this better. Doesn't everyone use a credit card? Not just the poor? Who are the poor in this case? Are tax deduction rules anything to do with the credit system?
Are you aware that merchants charge more for goods and services so they can offset CC merchant fees? Even a cash paying poor person who cannot get a CC is paying for this.
My comment is to show another way this is perpetrated. People saddled with CC debt could dig themselves out faster if they could write off interest.
> Are you aware that merchants charge more for goods and services so they can offset CC merchant fees?
Well, some places add on a fee, but yes, agreed, some places apply a blanket charge. I don't see how this relates to the tax deduction.
> Even a cash paying poor person who cannot get a CC is paying for this
This is about a tax deduction. Are you saying someone who can't get a credit card is going to be meaningfully affected by a tax deduction?
> People saddled with CC debt could dig themselves out faster if they could write off interest.
This is true, but also the giant number of people who just chose to get into credit card debt would be paying less tax. If you want to make credit cards into effectively interest-free loans then that might cause issues.
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People who are encumbered by credit card debt are usually people who would still be better off taking the standard deduction these days.
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Are you aware merchants charge more for goods and services so they can take returns? Even a perfect consumer who never returns items is paying for this.
The population likely to use HELOCs votes more and/or is more populous, so they have more votes.
Same reason Medicare (old people) pays healthcare providers more than Medicaid (young and poor people).
The real estate lobby is the largest lobby in the US.