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FTN Financial Economist Lindsey Piegza, Cato Institute Senior Fellow Dan Mitchell on the impact on the housing market if the mortgage-interest deducti...
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-- -- -- -- our top story tonight a huge potential change that could affect homeowners from coast to coast everyone knows.
That one of the big reasons to -- -- house has to take advantage of the mortgage interest deduction on your taxes but now.
That formerly secret untouchable deduction.
Is all hallows part of the fiscal -- talks the enormous tax break cost the government about -- -- billion dollars a year and you know that they are looking.
Under every rock for revenue but taking it away would surely term potential buyers -- in the housing market -- -- result could be devastating.
To the economy with me now is economist Lindsay be exempt from -- -- financial -- -- Dan Mitchell from the Cato Institute welcome to you both.
Lindsay let me start with -- We shouldn't be surprised everything's on the table here right.
Short -- but this this is a big potential problem because there's no doubt at that it would cause prices and homes to fall now we know what -- rise.
I'm -- it if you took away the mortgage deduction it caused prices to rise to actually see prices -- -- what you're seeing is the demand for homes with -- This is one of the biggest decisions when you're deciding whether or not to rent or purchase this is a huge incentive.
You remove that incentive in people are gonna drop out of the marketplace.
So all of a sudden you're gonna see a lot of potential home buyers would be homebuyers.
Drop out of the marketplace and we could see home sales plummet.
And cause a decline in prices of up to 10% so.
This could really underlie yet undermine any of the momentum that we've seen in the housing market as a -- -- interesting point of view because when I'm looking at buying a house you can discount what your monthly payment is gonna be -- how much you save on your taxes so to meet the price of owning a home would go up because I wouldn't have been deduction.
But if you're saying they're falling in concert writes -- the whole thing washes out then.
Well the problem -- -- doesn't just stop there now we saw on this morning's third quarter GDP report that residential investment actually increased 14% we saw.
A three -- contributions that headline growth.
So right there all of a sudden we're talking about do you really the housing market recovery.
And it could be up to a half a percentage point but again at the consumer confidence is up to five year high in part because the housing market has been stabilizing.
So all the sudden if we see the housing market take yet another head for the worst -- we could see consumers pull out of the marketplace and completely -- this for.
-- DMI I mean everything that we talk about trying to change here to solve this problem some group comes out from the sidelines weeping.
You know with Kleenex about what's gonna happen to them into the economy as a result I mean whether it's you know seniors -- they talk about.
-- of -- raise the tax on dividends that's what we're living on I mean everybody has their tale of woe and it's all legitimate I mean it was going to be her but with the.
Would you sell that.
We got to do some thing but I don't wanna give the government more money to waste -- I'm all in favor of as part of a move to a simple -- -- system like a flat tax.
I'm all in favor getting rid of the mortgage interest deduction even though I've been taking that deduction.
For 25 years.
We don't wanna have politicians trying to tilt the playing field and distort economic behavior can't -- that contributes to housing bubbles that undermines investment and and the private economy and you look around the world Australia Canada England Israel there are lots of countries that don't have anything close to what we have in terms of Bob preferences in the tax go get they have the same rates of homeowners need look -- I I I I Larry let me -- -- for a second and Lindsay damn makes a fantastic point and it a couple of them and one of them is up by virtue of putting this deduction -- here.
What about judgment -- homeownership and encouraging the government is saying homeownership is great.
Well it hasn't been great for a little while -- a lot of -- I got hurt the market because the government was telling people the Russian so maybe they just create distortions with this type of bank.
Of course that that's the government's best jobs that they do create distortions in the marketplace and I completely agree with your other -- that what we need to do is reduce those deductions.
Make it much simpler much fairer tax cut and completely eliminate those entirely now that would make sense that would allow -- -- to understand exactly what they were paying.
And it would put more -- back in the pockets of Americans so we could ramp up spending ramp up investment and get small businesses back on the -- to take on new employee yes.
-- saying doing this would hurt the housing market in the short term but from a larger economic point of view.
If we eliminated all the deductions across the board rather than cherry picking groups exactly that -- -- -- A problem with Washington right now is that we have such a short term view we need to look at these long term policies that we'll get us back on the path to long term prosperity.
Rather than just putting a band -- on the situation in getting one or two quarters of positive growth.
-- I mean if we did something like that can you honestly -- because Democrats always say that's all nice and good but the math doesn't work you know we eliminate all the deductions that we go to you.
You know it adds a tax -- that's so much more straightforward and is more simple they're gonna raise less revenue and we're going to be -- deeper hole what do you say to that.
Well this is the problem nobody in America -- very few people anyhow trust the politicians in Washington.
And what they're talking about right now is a perfect example they're not talking about getting rid of these deductions.
As part of a process of giving us a simple unfair and non corrupt flat tax.
They're talking about getting rid of our -- and these deductions so they get.
More money to waste real -- credit that adds up perfectly if -- actually used the money for tax reform -- -- -- 31 countries in the world not about flat taxes they're working very well.
But we know the crowd here in Washington has the wrong idea in mind so yeah I'm I'm happy getting rid of the deduction.
But not to give the politicians more money yeah I I hear it and that's a great point thanks above -- -- react more tax break points of both sides we appreciate it our.
