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The two main activities in my life: Helping the hungry in the late hours of the night and helping guitar players sound better one amp at a time.

I always try to remember that in order to do good one has to take action and actually do something.

I was born and raised in Los Angeles. I have watched the city and Southern California change for well over half a century.

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Los Angeles Architectural History

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Monday, December 20, 2010

How far does our government think people can be pushed?

A little earlier today I came across a story in the Los Angeles Times

Tax deduction for mortgage interest could be on the chopping block

I posted the link to the story on facebook.

The story was by By Don Lee, Los Angeles Times on December 20, 2010. 

The first paragraph in the story:

It's been around since 1913, but its time may be up. Such a change would generate billions of dollars in federal revenue that could be used to cut the deficit while inflicting little pain on most middle-class homeowners.

Little pain?  Was this a quote from some idiot that the author just passed along or was this the thinking of the author?  Most people in the USA live in houses that are not as pricy as they are in some major urban areas.  Why inflict any additional pain on people.  Our government needs to start thinking rather than just continuing with panic knee jerk reactions to save a sinking ship.

In any case I read further.  I am just a few small steps from joining the revolution myself.


Reporting from Washington — Fifteen years ago, Carol Nietmann and her husband bought a spacious house in Maryland near Chesapeake Bay. And thanks to the time-honored tax deduction for mortgage interest, she said, their new place was a little bigger and a little nicer than they would otherwise have thought they could afford.
Much the same has been true for millions of Americans up and down the income scale. Perhaps the most sacred of all the sacred cows in the tax code, the home mortgage deduction has long been seen as crucial to a major element of the American dream — owning your own home.

It has also been a boon to home builders, construction workers, the financial services industry and local governments that benefited from fatter real estate tax revenue.

But nearly a century after coming into existence, the mortgage deduction may face a day of reckoning. Although out of the spotlight while the lame-duck Congress thrashes to an end, the mortgage deduction issue is likely to resurface next year when the new Congress — including a lot more deficit-hawk Republicans — takes over.

In part, the hoary deduction has a target on its back as a result of policymakers rethinking the whole issue of homeownership. In the wake of the havoc that followed the latest housing bust — a calamity that still shadows the U.S. economy and will for years to come — it's no longer so clear that near-universal homeownership should be a paramount goal.

Scholars have long argued that the mortgage deduction and other tax subsidies supporting housing, including a deduction for property taxes and tax exemptions for profits on home sales, are neither equitable nor economically efficient. Some say they've helped skew the economy's reliance on an industry that has little export potential and often encourages over-consumption.

I think I can see where this is going as I read this piece.  Skew?  Are these folks ignoring the fact  that in many places in the country you can buy a home for less than $100,000 and a darn nice one at that.  But, in California, which has an economy that ranks higher than those of most countries housing prices are higher. 

Little impact?  Perhaps for some folks in some areas of the country but not in most urban areas of California.  Side note; California currenty adds 5,000 people per week to the roles of the uncounted and unemployed who have lost all benefits.  Maybe we can toss one more expense at these folks.

"It's fair to ask whether [government money] is best spent on housing or plants and equipment or other investments," said Richard K. Green, director of the USC Lusk Center for Real Estate.

More important, despite the deduction's grip on the public and politicians, changing it as part of a package of other revisions offers Washington a chance to do something meaningful about the surging federal deficit: generate billions of dollars more in federal revenue that could be used to cut the deficit while inflicting surprisingly little pain on most middle-class homeowners.

Generate billions more at whose expense?  Some of the commentary on facebook in less than 30 minutes:

Yeah they just extended the tax cuts for the Fucking billionaires

How can they possibly think this would inflict "little pain" on most homeowners?!?!? Another way to help gut the middle class and create a desperate workfoce thankful for any job at any wage. Think people before you vote in 2012!

My comment:   I find this insane. Is the government going out of their way to shifting their mid-east military forces back to the USA when folks revolt in the streets? How far do they think folks can be pushed? I know a lot of folks that are past their own breaking point and just taking time thinking of the most efficient way to create havoc on a government that puts them into deeper and deeper turmoil.

My comment:  "Inflict little pain" is the line in the article that shocked me the most. I cannot believe that somebody was stupid enough to make such a lame statement.



My comment:  I guess for folks in the multi million dollar tax bracket with those extended tax ...breaks the property tax will inflict less pain than it will for those who slip a little further behind each month.

 In my experience many if not most people in the multi million income bracket own their properties outright. When I was selling residential real estate a lot of the more expensive properties were paid with cash.Those are the folks for whom the loss of the mortgage interest deduction would "inflict little pain." Didn't those folks just get another big tax break?

My comment:  At the rate things are declining, at the rate that I count more homeless on the street, there may not be as many candidates to run in 2012. Chaos in the street has a way of discouraging people from showing their face in public if they are a part of the problem and folks in government are looking like a bigger part of the problem with every stupid story like this one.  Just print a crapload of money and give every person in America ten million dollars. Sort of like a last meal on death row but will get us to where we seem to be going faster.  Even if you paid cash for your home you still pay property tax and that is still the biggest deduction that most folks have at the end of the year. Get rid of that and you are throwing gas on a fire that is already burning out of control.

I was discussing this with someone a month back and they didn't believe me. If this were to be implemented it would hit both the West and East coast very hard. People would flee this state. The population of San Jose last year dropped by 60K. Most home owners at least partially accepted the enormous cost of getting a home in the Bay Area because of these critical tax deductions.


I don't know if you caught 60 minutes last night, but numerous States may actually go into default and that will blow a hole in the bond market into which many people fled to. What we have is hyper-Socialism for the rich and super-richer. The general wealth of the nation is not being created from any sort of tangible output, but it's being transferred up to the top incomes.
The National Assn. of Realtors already is running ads warning that tampering with the deduction would hurt "hard-working American families." The ads point out that 65% of the taxpayers who took the deduction made less than $100,000.

What the group doesn't say is that about 75% of the entire $85.5 billion that people saved in taxes from the mortgage interest deduction in 2008 went to individuals or couples making $100,000 or more, according to an analysis by the congressional Joint Committee on Taxation of the latest data available.

Based on the committee's numbers, taxpayers who took the mortgage deduction saved, on average, $2,330 in 2008. But for those reporting incomes of $200,000 and more, the average savings were nearly triple that amount.

About half of all homeowners in the U.S. — and just a quarter of all taxpayers — benefit from the mortgage interest deduction at all. That's because most people don't have home loans or don't pay enough in mortgage interest to take advantage of the benefit.

What stupid logic.  Once again, in California with it's economy that is larger than most countries and even in this time of unemployment, most do have loans and pay plenty in interest.  I would love to know who made this asinine statement so I could send some folks to your little town or village where you house was handed down through your family.  You want to punish others who had to buy their house?  Punish others who are employed in a geographic location where they may have been born, have family, went to school and had got the job they may or may not have today?



The logic above begs for a scene like this in front of their home or on the streets of their town.

Also left out are many homeowners in cheaper housing markets, though people with pricier homes and larger mortgages — many of them affluent younger Americans in coastal cities in California and on the East Coast — reap a disproportionately large share of the tax savings.

Is the author here insane or blind?  People that live in more expensive areas and have more expensive homes pay more in property tax. 

Not surprisingly, this geographical and financial divide can be seen when homeowners are asked how they would feel if the mortgage deduction were scaled back — or replaced by a tax credit, as President Obama's deficit commission has recently proposed as part of a broad overhaul of the tax code.

"I don't have a problem with it," said Sterling Hyden, 51, an insurance agent in Corsicana, Texas.

Home prices in his town, about 50 miles south of Dallas, average less than $100,000, he said. With a mortgage of a little more than $60,000 on their ranch-style house, Hyden and his wife don't pay nearly enough mortgage interest to benefit from the tax deduction.

Duh!  $60,000 on a ranch style house.  So because this guy is fine and dandy why not take away something that helps people that live in a cracker box in less geographical area of a place like Los Angeles where their 2 bedroom 1 bathroom 900 square foot house carries a $300,000 note and their property tax bill is about $3,500 - $4,500 a year.

Last year, couples filing joint federal returns needed mortgage interest and other deductions exceeding $11,400 to make it worthwhile to file itemized tax returns and take advantage of this tax preference.

The deficit commission's plan would do away with itemized deductions altogether and allow every homeowner to get a tax credit equal to 12% of interest paid on mortgages up to $500,000.

12% of $4,000?  Am I missing something here?  The match seems to not support one train of logic but I suppose it makes sense to some folks whose formal education stopped a bit short of elementary school graduation.

So for someone like Hyden, who is paying about $3,300 in interest this year on his mortgage, he would stand to get a tax credit of nearly $400, as opposed to nothing under the current system.

"As long as it's something fair across the board, I wouldn't mind it at all," Hyden said.

Yeah, I bet.  $400 for you as opposed to nothing but take homes away from others who had been getting this benefit.  Yeah Mr. Hyden.  I am amazed your vision allows you to see past the hood of your vehicle.

Much the same would be true in the vast majority of the country. Even in big coastal states, many people don't live in high-priced housing markets. For example, about a third of Californians live in counties where home prices average $200,000 or less — and many others, especially older homeowners, have relatively small mortgages.

I really am beginning to think this author is somebody I need to go visit in person.  I walk by the L.A. Times building many times each week.  I think a visit may be indicated.  One third live in homes priced at $200,00 or less?  What about the other two thirds?  Just toss them into the street?  Bottom line Mr. Lee, I think you and I need to take a bit of a stroll on San Julian Street between 5th and 6th as you seem to have lost touch with reality and have little idea of what is going on in this country or even outside your own window in Los Angeles. 

If all you are doing is passing on these statistics without telling the reader who is coming up with this logic then you deserve to be looked down upon for this article.  If this is your thinking and logic then you and I need to spend a little face time together.

The average nationwide mortgage loan as of October was $215,000, according to the Federal Housing Financing Agency.

On the other hand, younger homeowners in wealthier areas are likely to feel the biggest pinch. Take Hyun K. Chung of Orange County.

The 37-year-old occupational therapist has a mortgage of about $500,000 on her house, which she bought at the peak of the market in 2006. Her loan carried an interest rate of 6.4% last year, putting her interest payments at about $32,000.

This is not an expensive house in Orange County.

The intrest rate?  Not all that high.  Even if she wanted to attempt a refinance it has been shown to be a nightmare.  The banks are still holding onto their money like a shark in a feeding frenzy that grabbed a piece for itself.

Chung seems to have an education and a moderately priced home. It probably makes sense to that jerk Hyden. She should have something taken away so he can get his $400 or whatever the amount was.

Chung doesn't remember how much her mortgage deductions saved her in taxes, but based on rough estimates, it was probably about $6,600, said James Nunns of the nonpartisan Tax Policy Center.

The deficit commission's plan would slice that to about $3,800, though Nunns said the difference could be significantly offset by lower tax rates and other changes under the commission's proposal. The possible tax changes are still too imprecise to calculate exactly how they would affect people.

Replacing the mortgage deduction with a tax credit "would reduce the tax subsidy by a decent amount for a small fraction of the population and increase it by a small amount for a large number of lower-income households," said Todd Sinai, a real estate and taxation specialist at the University of Pennsylvania's Wharton School.

He predicted that the upper-end housing market could see a decline of a few percentage points relative to what would happen without a change in the tax code. That means home prices wouldn't necessarily drop as a result, but if values in those markets increased 10%, they would grow a few points less.
Even that may be too much for the banged-up housing market to absorb, homeowners and industry executives fear. With prices still depressed and more than one-fifth of homeowners owing more than the value of their properties, reducing or eliminating the mortgage deduction would be disastrous, they said.

Nietmann, the southern Maryland homeowner, worries about what the change would mean for the next generation. She said the mortgage on her home was mostly paid off, so the loss of the deduction would have little bearing on her and her husband. Still, she wants to keep the status quo. "For my children," she said.

Many experts don't think an elimination of the mortgage deduction will hurt homeownership, though they say it is likely to influence the size of homes people buy — and eventually what builders put up — as well as other personal financial decisions. More people may pay down their mortgages or invest in bonds or stocks if they see less tax benefits to keeping a big home loan.

Analysts point out that other countries, such as Canada and Australia, have high homeownership rates similar to the U.S., currently at 67%, without such housing tax subsidies.

Even so, it won't be easy for policymakers to discard the mortgage interest deduction. It's been around since 1913, having survived Washington's last big tax overhaul in 1986 and subsequent efforts that would have eliminated the provision.





Even without the current intense partisan divide, the issue pits lawmakers in high-end housing districts against those representing less expensive areas. Americans have never been comfortable with governmental redistribution of income, yet many are growing increasingly uneasy about the widening gap between the rich and poor.

Uneasy?  Take a walk outside the Times building to skid row one evening when you are done with work.  Pick a few blocks.  Count the people.  Wait another month.  Walk the same block.  Count the people.  We are only steps away:


Alice Rivlin, a former top budget official in the Clinton administration and a member of Obama's deficit commission, said any big change in the mortgage deduction wouldn't happen by itself. It'll be part of a broader makeover of a tax system that she and leaders in both parties agree is too complicated and riddled with special deductions and exclusions.

"It's got to be a wholesale reform," she said. Though reluctant to assess its chances, Rivlin said the time might finally be coming because of the magnitude and urgency of the nation's budget deficits. "It's certainly possible," she said.

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