The mortgage interest deduction in particular now helps the top 20% or so afford their homes. And afford to continue paying more for homes in their range. Thus boosting property values and prices. While the lack of mortgage interest deduction for additional homes increases the cost of homes which are let out as rentals, which directly impacts the cost of renters, and indirectly boosts the costs of renters through the rise in property values.
I haven't studied this, and lack the ability to do an economic analysis of the yoyoing of increasing home prices versus new construction. But there's probably a regressive effect on wealth even for some of those who aren't living hand-to-mouth.
It looks like the mortgage interest tax deduction did decrease from interest on up to $1 million in loans to interest on up to $750 thousand with the 2017 tax change. This should help reduce the effect on house prices a little bit on the margin.
> it is mostly the high earners that are paying for everything, offsetting the their wealth accumulation.
To an extent this is true. But this argument is also used to say that renters don't pay property taxes. Maybe not, but property taxes have a direct, proportionate effect on the rent that they pay.
>To an extent this is true. But this argument is also used to say that renters don't pay property taxes. Maybe not, but property taxes have a direct, proportionate effect on the rent that they pay.
When you have makets with a gap between production cost and the market price, there is the possiblity that the seller simply eats the cost.
Imagine wallmart selling widgets with a profit. If the price of the widget is already set where the marginal profit for increasing the sticker price is zero, This holds true even if production costs go up. i.e., raising the price still results in fewer sales and less profit, independent of production cost.
In terms of housing, if nobody can afford higher rent, landlords cant raise it without more vacancies. In that case, tax might come out of their profit and not be passed on.
Yes, this is true. Some landlords merely use rent to offset the cost of the house, not to cover it entirely. But over enough years, the majority of rental property has to be paying its way, or it gets sold off.
This was actually the point I was trying to make. It depends on how you look at it, but by one measure, taxes on net are slowing the wealth accumulation of everyone who pays more than the national average tax. Those who pay less than the average are typically living hand to mouth and not accumulating wealth. When you look at where tax revenue comes from, it is mostly the high earners that are paying for everything, offsetting the their wealth accumulation. Even despite factors like itemized tax deductions, your high earner will still be paying far more than your low earner. For example, the federal rate of 37% on income over 500k will still be far more than 12% on less than 41k, even with tax deductions.
There are of course some factors that offset this, like maintaining the rule of law, education, and property rights which help lift all boats, rich and poor.