The Instigator
QT
Pro (for)
Winning
15 Points
The Contender
randolph7
Con (against)
Losing
7 Points

The home mortgage interest deduction should eventually be eliminated in the United States

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Voting Style: Open Point System: 7 Point
Started: 8/18/2011 Category: Economics
Updated: 5 years ago Status: Voting Period
Viewed: 1,936 times Debate No: 17956
Debate Rounds (3)
Comments (4)
Votes (4)

 

QT

Pro

Resolved: The home mortgage interest deduction should eventually be eliminated in the United States

Definitions:


Home mortgage interest deduction: "Allows taxpayers who own their homes to reduce their taxable income by the amount of interest paid on the loan which is secured by their principal residence (or, sometimes, a second home)"
http://en.wikipedia.org...

Eventually: Over a period of five to ten years.

Eliminated: To remove or get rid of.

Round one will be for acceptance only.
randolph7

Con

I accept.
Debate Round No. 1
QT

Pro

I thank my opponent for accepting this challenge, and I look forward to a good debate!


The home mortgage interest deduction is one of the largest federal tax expenditures. The president’s fiscal year 2010 budget reports that this tax deduction will cost the Treasury Department an estimated $131 billion in 2012.
(1)


Proponents of the home mortgage interest deduction believe that it creates an incentive for home ownership. However, virtually all researchers have found that the current mortgage interest deduction is not a cost-effective tool for increasing homeownership. As two Harvard economists concluded, “Since the 1960s, the homeownership rate has barely budged, staying within a fixed band between 63 and 68 percent. Moreover, the changes in the rate that have occurred seem more related to the suburbanization of the economy than to the subsidy created by the deduction”.
(2)


It’s not surprising that the home mortgage interest deduction has failed to raise homeownership rates. As it turns out, the deduction’s main beneficiaries are not individuals on the margin between renting and owning. This is primarily because the mortgage interest deduction is only available to itemizing taxpayers, who are most likely to be individuals in the middle and upper income tax brackets. As a 2008 study found, over 86 percent of individuals with annual incomes between $75,000 and $125,000 itemized. However, only 23 percent of those making less than $40,000 itemized.
(3)


Furthermore, the average value of the home mortgage interest deduction increases greatly with income. Individuals with annual incomes less than $40,000 who opt to itemize receive an average of only $91 from this deduction. However, individuals making $250,000 or more receive an average of $5,459. (3)


Clearly, the home mortgage interest deduction has served only to increase economic inequality in the United States. However, r
esearchers have found that relatively low levels of inequality are most desirable. As Cornia et al. stated, “Any country that intends to maximize poverty reduction should choose the lowest level of inequality within the efficient inequality range. Aiming for the lower end of the range is important because one obtains the same level of growth at lower levels of inequality, and it allows the reduction of poverty at a faster rate.” (4)


Economic inequality in the United States is currently on the high end of the acceptable range. (4) Therefore, according to Cornia et al., the United States’s policies should aim to reduce inequality. However, as I have made clear, the home mortgage interest deduction does just the opposite of this.


Conclusion:


The home mortgage interest deduction has not raised homeownership rates, as several intended it would. In addition, this deduction has worsened the existing economic inequality in the United States.


Eliminating the home mortgage interest deduction over a period of five–ten years would greatly increase federal income tax revenue. This money could be used to pay down the excessive national debt.


References:

  1. http://www.urban.org...
  2. http://www.economics.harvard.edu...
  3. http://real.wharton.upenn.edu...
  4. http://training.itcilo.org...
randolph7

Con

To recap Pro's arguments, there seems to be three premises that Pro argues support the resolution:

P1: Income inequality is caused by the MID
P2: MID does not create an incentive for home ownership
P3: MID is one of the largest federal tax expenditures


P1: Income inequality is caused by the MID
Pro fails to show how MID causes inequality. Sure, according to her sources there is inequality but that hardly makes MID the sole or even proximate cause. There may be a correlation but definitely not enough proof that it is the cause.

Pro also states, "the average value of the home mortgage interest deduction increases greatly with income." Of course, it does; someone who makes more will spend more and some of the spending is offset by tax deductions. Other tax deductions such as charitable giving are likewise progressive in that higher income returns get more back [5]. Pro misses the obvious here – that the deductions are larger for high-income individuals because their houses are worth more.

Furthermore, the issue of inequality itself is hardly far from settled. Mr Gordon, from the National Bureau of Economic Research, states that improved use of income datasets "shows that there was no increase of inequality after 1993 in the bottom 99 percent of the population…" So, for almost a decade there has been no rise in inequality [3]. In fact, another paper from economists at the University of Chicago, Christian Broda and John Romalis, shows that real inequality may have actually fallen between 1994 and 2005 [4].

Now, if inequality has not increased and might have actually fallen while MID has been in place for all those years (1993-2005 specifically), then there would have to be another cause for inequality and most likely multiple causes.


P2: MID does not create an incentive for home ownership
Pro makes the mistake of thinking that if homeownership rates remain level, then that is a good reason to eliminate MID. While the data seems to support this premise, the premise fails to support the conclusion.

In addition, the percentage of itemizers would barely budge if the MID was eliminated. For example, medical expenses, charitable contributions, business expenses, educational expenses, disaster losses are all deductible [1]. People making $75,000 or more would still itemize as they tend to have more items that are deductible than those making less than $75,000. While it may be true that only 23% of those making less than $40,000 itemize they are less likely to own a house [2]. And as that would be a major source of deductions for those making less than the median income and owning a home, the loss of MID would impact them the greatest. Moreover, for low-income individuals that do get the MID, it would likely very much be an incentive for them to own a home.

Let us assume that there is no incentive at all currently, eliminating the MID would hardly create incentive to buy in and of itself. How does eliminating a deduction that's been in place for 100 years make people want to go out and buy a home?


P3: MID is one of the largest federal tax expenditures
This is an accounting trick. Tax deductions are not expenditures of the Federal government. That would be the along the lines of a business treating sales that were not made as expenditures. In order to be an expenditure, the money would have to actually come from the government's coffers. And before you say that the MID caused spending in other areas which has the same effect, thus making it an expenditure, let me say that there is no direct correlation to any budget item so proving it's cost would be merely guesswork. Both spending and revenue need to be looked at, if the Federal Debt is ever to be controlled, I just do not think it should be on the backs of homeowners.

Conclusion:
The only point Pro makes that goes to the elimination of the MID is that it is a large "expenditure" for the federal government. Interestingly, this is the point she spends the least amount of time on. But if I look at it as an expenditure (which I don't), there are many large expenditures (real ones) in the government that shouldn't be phased out such as Social Security and Defense spending. Just because an expense is large does not mean it should be eliminated. To the other two points raised, MID causing inequality and the MID not incentivizing home ownership, even if accepted as true are not good reasons to eliminate or even phase out the MID.

I'd like to thank my opponent for this insightful debate and eagerly await their response.


Sources:
[1] http://www.irs.gov...
[2] http://www.census.gov...
[3] http://www.nber.org...
[4] http://faculty.chicagobooth.edu...
[5] http://www.irs.gov...
Debate Round No. 2
QT

Pro

C–1: The mortgage interest deduction (MID) has contributed to the growing economic inequality in the US.


At the beginning of the debate, my opponent claimed that I “failed to show how the MID causes inequality.” However, in making this claim, he completely disregards the arguments I made in round two. As I clearly showed, the MID contributes to the growing economic inequality for at least two reasons:


1. This deduction is only available to itemizing taxpayers, who are mainly individuals in the middle and upper income tax brackets. As a 2008 study found, over 86% of individuals with annual incomes between $75,000 and $125,000 itemized. However, a mere 23% of those making less than $40,000 itemized.


2. Making matters worse, the average value of the MID increases with income. Individuals making less than $40,000 a year who opt to itemize receive an average of only $91 from this deduction. However, individuals earning $250,000 or more receive an average of $5,459.


Clearly, most middle and upper class Americans benefit greatly from the MID. On the other hand, the few lower-class Americans who benefit from this deduction do so only slightly. My opponent even appeared to concede these points later in his argument. As he stated himself, “Of course, [the average value of the MID increases with income]; someone who makes more will spend more and some of the spending is offset by tax deductions.


Oddly, my opponent then went on to disregard this evidence. Following the above admission, he presented a study which supposedly found that economic inequality was on the decline. As he claimed, “A paper from economists at the University of Chicago shows that real inequality may have actually fallen between 1994 and 2005.” My opponent then erroneously concluded that the MID could not possibly cause economic inequality, since it had been in place between the years 1994 and 2005.”


Surprisingly, the study in question doesn’t even support my opponent’s claims. The authors of this study simply stated that, “Around half of the increase in conventional inequality measures during 1994 – 2005 is the result of using the same price index for non-durable goods across different income groups.” Clearly, this research article doesn’t deny that economic inequality is increasing. It merely suggests that some previous studies may have overestimated the rate of the increase during the relevant period.


My opponent’s study and numerous others show that economic inequality has clearly continued to rise over the past decade. However, even if the opposite were true, my first contention would still be valid. This is simply because there are many factors which collectively determine the distribution of wealth in any given nation. Some of these factors, such as welfare programs, tend to distribute money to the poor. Others, such as the MID, probably tend to distribute money to the wealthy.
The overall trend in economic equality depends on the balance between these factors. Even if economic inequality declined, some individual factors would still tend to distribute money to the rich.


Therefore, we cannot tell if the MID tends to distribute money to the wealthy simply by looking at overall trends in equality.
To determine weather or not my first contention is valid, we must examine the MID individually as I did in round two and again in this round. As my analysis clearly shows, this deduction does indeed distribute money to the wealthy. Therefore, by definition, it must contribute to the economic inequality in the United States.


C–2: The MID does not create an incentive for homeownership.


My opponent states that, “Pro makes the mistake of thinking that if homeownership rates remain level, then that is a good reason to eliminate MID.”


My opponent has clearly misinterpreted my argument. I never claimed that the MID should be eliminated solely because it has not increased homeownership rates. Instead, I argued that this deduction should be eliminated because it provides few or no benefits (e.g. it does not provide an incentive for homeownership); yet, this deduction has several negative consequences.


My opponent then went on to claim, “And as that would be a major source of deductions for those making less than the median income and owning a home, the loss of MID would impact them the greatest.”


This argument is false. The median income in the US is only $40,000. As I stated above, only 23% of those making less than $40,000 choose to itemize. Therefore, eliminating the mortgage interest deduction would not affect 77% of these low income Americans in any way whatsoever.


Finally, my opponent stated, “Moreover, for low income individuals that do get the MID, it would likely very much be an incentive for them to own a home.”


This suggestion is also incorrect. As I stated above, individuals with annual incomes less than $40,000 who opt to itemize receive an average of only $91 from this deduction. This is hardly enough to provide an incentive for homeownership.

randolph7

Con

I would like to thank my opponent for a very engaging debate.

The mortgage interest deduction (MID) has contributed to the growing economic inequality in the US.

I see my opponent has decided to attack my sources. However, that’s the thing, economists are all over the board, so who are we to believe? The point is that inequality may be rising, falling, stagnant but there is no real way to know because it depends on the dataset you are using and the sources you are citing. I never said it was falling; only that inequality may be falling. This is not a concession; it is the reality of trying to ascertain causes for complex economic systems that rely on human interactions.

Pro, in the last round reiterated her claims that those who make less than $40,000 do not itemize as often and that those making under $40,000 only receive $91 in deductions. I do not disregard these claims; they simply do not show causation. Let me explain, just because it is not common for those under $40,000 to itemize does not mean that the MID is to blame. Those make more and itemize have more to itemize because they SPEND more. Simply by having more money does not mean the MID caused them to have more money. Even without the MID, those making over $75,000 would STILL itemize. Pro’s argument simply does not support that MID causes inequality.

If anything, MID is an equalizer as it allows the low-income to itemize when they otherwise would not. Ninety-one dollars might not sound like a lot to you but to the low-income, any support helps. In addition, just so the reader is not confused, Tax Deductions and Tax Refunds are not the same thing – The person making $75,000 is much more likely to PAY and the person making $39,000 is likely to receive a REFUND.


The MID does not create an incentive for homeownership.

Pro states, “Instead, I argued that this deduction should be eliminated because it provides few or no benefits (e.g. it does not provide an incentive for homeownership); yet, this deduction has several negative consequences.”

Using pro’s statistics, while it is true that 77% of low income individuals wouldn’t be affected by elimination, over 1 in 5 would. Like I have said, for low-income individuals, the MID most likely is the reason that they get to itemize. Moreover, for the 77% that do not benefit now may at some later stage get a house and need that deduction.


Pro has not shown why inequality (if it even exists) is bad nor has pro shown any other “negative consequences”. Inequality might be good in that it is incentive to reach for more. It may be that the system needs a certain percentage of the population to be poor in order to function well. Simply saying something is a negative consequence does not make it so.


Conclusion:
Pro obviously dropped her third contention about MID being one of the largest federal tax expenditures, so I extend my arguments against that. Pro makes a big deal about deductions. However, if you look at the source (Table 1), the figures $91 for under $40,000 and $5,459 for those making $250,000 or more are the tax savings not the tax refund (the amount received). This means the low-income get their taxes reduced by $91. Considering, the average tax burden in the study source year (2004) for those individuals making $40,000 is $5,289, reducing that by $91 is definitely significant. Furthermore, a good portion of that burden will be offset through tax credits, which the person making $250,000 does not get (such as the EIC). There’s simply no good reason put forth for MID’s elimination.
Debate Round No. 3
4 comments have been posted on this debate. Showing 1 through 4 records.
Posted by Sojourner 5 years ago
Sojourner
I'm glad Con pointed out the "expenditures" misnomer
Posted by QT 5 years ago
QT
I didn't have enough characters left to address your third contention.

I have no idea why I set the limit at 5K characters instead of 8K!
Posted by QT 5 years ago
QT
5-10 years.
Posted by Ore_Ele 5 years ago
Ore_Ele
"a short period of time" is that like a few years? or a few decades?
4 votes have been placed for this debate. Showing 1 through 4 records.
Vote Placed by F-16_Fighting_Falcon 5 years ago
F-16_Fighting_Falcon
QTrandolph7Tied
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Total points awarded:07 
Reasons for voting decision: Countering Massdebator255's votebomb.
Vote Placed by MassDebator255 5 years ago
MassDebator255
QTrandolph7Tied
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Total points awarded:70 
Reasons for voting decision: dont cry dont cry dont cry
Vote Placed by Double_R 5 years ago
Double_R
QTrandolph7Tied
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Total points awarded:30 
Reasons for voting decision: Very impressive arguments from both sides. Pro satisfied her BoP by providing 2 valid contentions that show why the MID should be eliminated. Cons arguments weakened Pros arguments but did not fully negate them. Since Con did not provide a counter argument as to why the MID should not be eliminated, then all I can do is look to the arguments that show that it should be, which still to some extent stand.
Vote Placed by jimtimmy 5 years ago
jimtimmy
QTrandolph7Tied
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Total points awarded:50 
Reasons for voting decision: Eliminate the Home Mortgage Deduction, as well as numerous other deductions, and lower tax rates.