SENATE BILL: Residential Taxation Reform Act of 2014 (Law'd)

[Fmr. Pres. Duke]

My only fear here is, we'd create yet another housing bubble by encouraging house flipping, etc.

[Fmr. Pres. Duke]

There are all kinds of things people do or try to do to avoid the capital gains tax on the sale of property already through like-kind exchanges, gifts, donations to charities, 1031s, etc. You already are tax exempt from up to $500,000 in gains in your primary residences as it is. Eliminating all of the taxes would just benefit the top earners.

Additionally, I am not really in favor of doing away with the deduction for interest payments, at least not all at once. I'm not sure how that helps people. Most are taking on less debt today because down payment requirements are so high anyway, and for other forms of debt like student loans, etc, it only hurts. People will take our debt regardless of whether they can write it off on taxes or not in most cases because they see it as necessary.

[Fmr. Pres. Duke]

Why do we want to get rid of the mortgage interest deduction? I just don't understand this line of reasoning.

[Fmr. Pres. Duke]

Generally most are right in that this change would overwhelmingly benefit the wealthy, as I explained above (already gains are exempt for first $250k/$500k jointly).

I don't want to stomp on this bill, but I also don't want to give the super wealthy another tax break.

[Fmr. Pres. Duke]

What is the rationale behind eliminating it? It favors the wealthy? We need the revenues?

[Fmr. Pres. Duke]

Wait.

If you're currently locked into a 30-year mortgage, then the deduction going away would increase costs rather considerably for those people who budgeted for the former legislation. We should grandfather in existing mortgages. If the goal is to change investment habits, grandfathering wouldn't effect the end goal.

Yes, which is why I am curious about why so many are behind this. A lot of people rely on the deduction to maintain property/rental and pay their mortgage. I'm concerned if we do away with that, it will hurt people more than it will help.

[Fmr. Pres. Duke]

I would be open to that, shua.

The more I think about it though, simply removing the deduction entirely would have negative effects on a lot of things. I won't deny that it favors the wealthy more than the poor, but the working class still takes advantage of it.

[Fmr. Pres. Duke]

If we decide to cap or even go with shua's idea, we need to make sure the new laws apply to all new mortgages or applies when someone refinances. Otherwise, you are grandfathered in. I don't favor switching all current mortgages over to a new law upon passing this bill.

FTR, I favor a cap on the deduction. I was going to propose that yesterday, but I have been battling some food poisoning and didn't post. I'm glad Nix got to it.

[Fmr. Pres. Duke]

I'm not going to sign any bill that changes the law mid-mortgage. A lot of people take out these loans and budget their lives around the deductions, and it would be unfair if we unilaterally changed the law and forced people who had already signed contracts to abide by it.

A cap would be the most feasible because that wouldn't require grandfathering; we could just limit the total amount of deductions a person could make under the provision.

[Fmr. Pres. Duke]

I'm not going to sign any bill that changes the law mid-mortgage. A lot of people take out these loans and budget their lives around the deductions, and it would be unfair if we unilaterally changed the law and forced people who had already signed contracts to abide by it.

A cap would be the most feasible because that wouldn't require grandfathering; we could just limit the total amount of deductions a person could make under the provision.

How is a cap any different in that regard? It would still change the effective taxation on existing loans.

Truthfully, I'd prefer to grandfather all existing loans regardless of which route we take; I won't even be sad if we keep the system as it is.

I guess my line of reasoning there is that a cap would likely affect the wealthy more so than the working class since they deduct more from their mortgage interest payments than the working class.

I am just trying to avoid a situation where we throw a lot of budgets out of control because we remove the deduction entirely. Some people who cannot afford to lose these deduction will be in a lot of trouble if we do something like that. While many here may not believe this deduction helps working class people, it does. It may help the wealthy more, but it still helps the working class.

[Fmr. Pres. Duke]

If we do a cap, does it make more sense to do an annual cap or a total cap?

I was assuming we would cap it at a specific amount of deductions per year. But I'm open to alternatives.

[Fmr. Pres. Duke]

We could easily finish this bill with an amendment setting a cap. Problem is, I don't know much about what would be a fair limit to cap it at - maybe 25 cents on the dollar? My goal is to make this so the wealthy don't overwhelmingly benefit anymore, but we also don't hurt those who rely on the deduction in their annual budgets. Right now, we allow homeowners to deduct up to $1 million a year from their taxes using the mortgage deduction.

If we want to explore shua's proposal, that's fine too, but I'm not very familiar with it.

[Fmr. Pres. Duke]

I'm okay implementing a cap that only affects those who can afford to take the hit, as I said, but I'm not okay with removing it entirely. It will put a lot of people in a difficult position.

[Fmr. Pres. Duke]

I'm ready for a final vote as it is unless someone dares says otherwise.

[Fmr. Pres. Duke]

I'm OK with it as it is. I'll support a cap.

[Fmr. Pres. Duke]

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x Duke

Hey, this is something I can live with.