You used to be able to deduct any consumer debt. But that stopped in 1986. The reason was "Congress believed deductions for personal interest encouraged people to consume and stifle savings."

https://www.telegram.com/story/news/local/worcester/2007/03/...

There used to be mostly piddling deductions for all sorts of things that you don't have today. It's probably mostly a positive to not keep track of things like sales tax in order to minimize your income tax.

Deductions also cause people to go temporarily insane - it’s fine paying 5% unnecessarily because I get 2% back on my taxes! Ignore the 3% that is gone forever …

Sales tax deduction still exists. 2017 law temporarily lowered but didn't eliminate it.

IF you itemize. 90% don't. Also, you can only deduct sales tax OR state and local income taxes but not both.

Even then I’m not sure how much it affected the poorer people, since you still had to overcome the standard deduction (lower, sure).

The deduction on mortgage interest now mostly only affects the well-off because the standard deduction for married filing jointly is so high.

The the 1980s the deduction for mortgage interest would have been significant, I suspect most people itemized then. And the huge standard deductions we have now are a fairly recent tax change.

It was 3400 for a married couple in 1980, but yes, many more people deducted mortgage interest until 2018 when the standard deduction nearly doubled.

Many people didn't math the interest deduction correctly - only the amount over the standard deduction should be counted, as you'd get the standard deduction anyway. Can vary depending on SALT and charity donations.

Yes, real estate tips always seemed full of self serving nonsense to me and usually talked big about the tax savings. But with my modest house and mortgage I calculated that even at the start of my mortgage I saved a whopping $800/yr on taxes with deductions versus the standard deduction. I spent well more than that on furnishings and repairs every year. And that tax advantage (for me) disappeared entirely after maybe 5 years or something.

For a long time I would read money saving tips articles and a tip that frequently came up in these and in pro real estate pieces was that paying a single extra mortgage payment per year would let you pay your mortgage off 12-15 years early.

When you did the math you realized it was bogus. As near as I can tell, this actually was true for one brief period in the 1980s when mortgage rates were at their zenith. Articles were written about this amazing tip well into the 1990s before the BS was transcribed to the internet and then repeated well into the super low interest rate era where it wasn't even close to being true.

Of course it wasn't even really true in the 1980s either. Once interest rates went down you'd have been wise to refinance at the newer lower rates instead of prepaying the mortgage as it would improve your cash flow and lock in the savings. So in reality, it would have only made sense if interest rates had stayed at that same high rate for the whole length of the mortgage!

> encouraged people to consume and stifle savings

Ironic in hindsight; every monetary and fiscal policy as of late seems to be designed to punish savers and reward debtors.

Hard to extract profit from the fiscally responsible.

Which is kinda stupid, when the economy is based on people consuming.

I guess Reagan's friends at that point wanted more money for Wall Street to gamble.

> While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?

AFAIK it's a carve out specifically for houses. Car loan interest isn't deductible despite being "secured".

It's a bargaining chip to get votes. If one party promises a larger tax saving on homes, then homeowners are more likely to vote for them.

Besides that, there may be some societal benefits to increased home ownership.

As I understand it, mortgage interest deductibility was originally basically social policy (rightly or wrongly). And you can't take a benefit like that away--even if the government kind of did for most people by increasing the standard deduction. (Which was probably not a terrible way of doing so.)

Granting a tax credit for something encourages that thing. So, from that perspective, I think it makes some sense to grant a tax credit for mortgage interest but not credit card debt.

Tax credit for mortgage interest encourages speculative investment in the housing market. Tax credit for credit card debt encourages consumer economic activity.

you have to live somewhere.

maybe you rent, but renters DGAF about the local community the way that homeowners do.

home (property) taxes also fund a lot local services, schools, etc. you want prices higher and stable, and not dominated too heavily by mega-corps that will weasel out of paying said taxes.

I've rented in my town for ten years, and I care about it a lot thank you very much.

Renters absolutely care about the local community.

Though one can write off losses from gambling in the US.

I wish the tax code had more a more positive slant per your point, but lobbying seems to be a bigger driver.

Pretty sure you can only write off gambling losses to offset gambling winnings, which entirely makes sense. That way you only pay taxes on your net winnings for the year.

I can confirm this.

> the ways the credit system holds back the poor

It would be good to understand this better. Doesn't everyone use a credit card? Not just the poor? Who are the poor in this case? Are tax deduction rules anything to do with the credit system?

Are you aware that merchants charge more for goods and services so they can offset CC merchant fees? Even a cash paying poor person who cannot get a CC is paying for this.

My comment is to show another way this is perpetrated. People saddled with CC debt could dig themselves out faster if they could write off interest.

> Are you aware that merchants charge more for goods and services so they can offset CC merchant fees?

Well, some places add on a fee, but yes, agreed, some places apply a blanket charge. I don't see how this relates to the tax deduction.

> Even a cash paying poor person who cannot get a CC is paying for this

This is about a tax deduction. Are you saying someone who can't get a credit card is going to be meaningfully affected by a tax deduction?

> People saddled with CC debt could dig themselves out faster if they could write off interest.

This is true, but also the giant number of people who just chose to get into credit card debt would be paying less tax. If you want to make credit cards into effectively interest-free loans then that might cause issues.

> but yes, agreed, some places apply a blanket charge. I don't see how this relates to the tax deduction.

Earlier you asked me to explain how credit cards harm the poor. I showed you, and now you complain that it doesn't pertain to a tax deduction. It's not about a singular thing. The singular thing was one token example of a larger theme that for some reason you refuse to acknowledge.

People who are encumbered by credit card debt are usually people who would still be better off taking the standard deduction these days.

Exactly. It sounds harsh but those encumbered with usurious credit card debt would be better served by being forbidden from having it at all; but that’s a position strongly fought against on all sides.

They would not. One man's "usurious" debt is another's "wtf why do rich people get interest rates under 1% of payday loan offerings" (not in those terms).

... and the answer to that is the charge-off rate on a prime credit card portfolio is currently around 2%, whereas it's 55% for payday loans.

Are you aware merchants charge more for goods and services so they can take returns? Even a perfect consumer who never returns items is paying for this.

The population likely to use HELOCs votes more and/or is more populous, so they have more votes.

Same reason Medicare (old people) pays healthcare providers more than Medicaid (young and poor people).

The real estate lobby is the largest lobby in the US.

It was! Auto leases were deductible too which was a big subsidy for the auto industry.

Once rich people figured out how to get poor people to be angry about things like higher marginal tax rates for rich people and “death taxes”, we raised taxes on the suckers to benefit the richer people.

To a first approximation, no one actually takes advantage of the mortgage tax deduction any more because the standard deduction is so high and the cap on state tax/property taxes is so low that most people don’t itemize.

Only about 10% itemize.

https://www.taxpolicycenter.org/briefing-book/what-are-itemi....

And the majority of those make more than $500K. The deductions are probably mostly some combination of mortgages on very expensive properties or very large charitable contributions, probably often tax-shielded in some manner.

You can’t deduct interest on personal income tax for mortgages over $750,000, so it seems somewhat unlikely that such deductions make up any significant amount of the deductions: https://www.irs.gov/publications/p936#en_US_2023_publink1000...

The $750,000 amounts to a cap on the deduction. If your mortgage is in excess of that amount, you would pro-rate the deductible interest accordingly.

I think it's reasonable to say that the folks with the largest mortgages are the ones most likely to itemize mortgage interest, even if they are capped.

Yeah, that is what I was trying to convey with regards to the interest deduction being capped, not that the deduction just stopped. I think my second point was a bit muddle as I was trying to suggest by the time you are at a very high income level, your deductions are primarily made of other things, because the mortgage interest deductions can only be so large. That's indeed what the underlying data from the IRS shows as you go up in income past $500k a year comparing column 91 (total home mortgage interest deducted by itemized filers) to column 61 (total itemized deductions) in the ridiculously massive table that the the Tax Policy Center summarizes from that starts on page 137: https://www.irs.gov/pub/irs-pdf/p1304.pdf

HELOC debt is (since 2017 TCJA) now only deductible if used to purchase or upgrade/repair the house. And now the vast majority of people are not going to be deducting any mortgage or HELOC debt anyway, since the standard deduction is so high now.

> While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?

HELOC interest is rarely deductible either. First, you now must be able to itemize deductions, which the recent tax changes have made very unlikely. Less than 12% of tax returns are able to itemize:

https://www.irs.gov/pub/irs-soi/soi-a-inpre-id2303.pdf

In addition, even if you are in that ~11% who can itemize, HELOC interest is only deductible if you use it to work on the same house being used to get the LOC. Any other use is not deductible.