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Monday, August 27, 2007

WaPo: Carbon Tax Bill Would Eliminate Mortgage Interest Deduction for "McMansions" -- Homes Over 3,000 Square Feet

Tax Deduction Under Fire for "McMansions," by Kenneth R. Harney:

To add to the mortgage meltdown miseries, the credit panic, the plunging home sales and the rising foreclosures, here's a new worry: a proposed cutoff of mortgage-interest tax deductions for houses with more than 3,000 square feet.

One of Capitol Hill's most experienced and most powerful legislators is drafting a "carbon tax" bill that would do precisely that. The chairman of the House Energy and Commerce Committee, John D. Dingell (D-Mich.), expects to introduce comprehensive climate-change legislation when Congress returns next month. Besides imposing hefty new federal taxes on gasoline, the forthcoming bill would, in Dingell's words, seek to "remove the mortgage interest deduction on McMansions -- homes over 3,000 square feet."

Dingell said he recognizes that such a proposal will spark much criticism, but he also said it is essential to reducing carbon emissions by 60% to 80% by 2050. "In order to address the issue of climate change, we must address the issue of consumption," Dingell said in talking points prepared for town-hall discussions of the legislation. "We do that by making consumption more expensive." ...

[R]eal estate and building groups were quick to offer critiques. Lawrence Yun, senior economist for the National Association of Realtors, produced preliminary estimates that ending mortgage-interest tax deductions for all single-family dwellings larger than 3,000 square feet would result in a national median-house-price decline of 4 percent on all homes, not just large houses. Yun said there are at least 10.4 million single-family houses with interior areas of 3,000 square feet or more, about 15% of the nation's owner-occupied housing stock. Dingell's plan could also push up foreclosures because every 1% decline in median price leads to an additional 70,000 foreclosures.

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Comments

Typical Democratic Party tax proposal. Tax the citizens with any ability to produce anything of value until they have no incentive to produce anything of value. Social wealth is not created by government fiat, and taxes based on that mistaken premise will do nothing to redistribute wealth to the more "needy" who may cast votes for Rep. Dingell and his ilk.

Posted by: Jake | Aug 27, 2007 8:55:51 PM

Congressman's Dingell's proposal should generate a useful discussion of how best to encourage behavior that helps the environment and use taxes to enable polluters to pay for some portion of their pollution. There are several areas in current tax rules that encourage pollution, such as non-taxable employer-provided parking.

Challenges of designing polluter pays taxes or incentives or disincentives is targeting them. Eliminating a mortgage interest deduction for large homes isn't targeted well enough as it affects owners of a large home powered by renewable energy and it doesn't reach those with no mortgage yet who contribute to global warming. Perhaps an energy tax for utilities usage beyond what would be used in an average home with 4 occupants would be better.

But, with the focus on how to reduce greenhouse gas emissions, we need to become better educated as to what causes GHG emissions, how to reduce them, and what incentives and penalties may help.

For more, see http://21stcenturytaxation.blogspot.com/.

Posted by: Annette Nellen | Aug 31, 2007 11:14:24 AM