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October 16, 2021

U.S. homeowners shouldn't be able to deduct mortgage interest: report

With proposals from both U.S. presidential candidates to broaden the tax base, it seems likely that some cherished income tax deductions will need to be fiddled with, and one possible candidate is the tax deduction for mortgage interest -- a perk longed for by many Canadians.

The mortgage interest deduction requires the government to essentially write an annual cheque to everyone who owns a house, at the same time encouraging people to take even bigger mortgages. It will cost the U.S. government more than $90 billion this year.

Mitt Romney, for instance, suggested that such a change could be part of a plan that includes a 20 per cent cut in tax rates across the board. And the Democrats definitely want to appeal to middle America.

Cutting tax breaks is often highly progressive, hitting higher earners more than people earning less, the Wall Street Journal points out. That's because upper-income taxpayers are more likely to make greater use of benefits by "itemizing" deductions and listing them separately.

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Politically though, it remains difficult to get rid of this particular perk, except that's exactly what both candidates should be doing, argues colmnist Froma Harrop.

The deduction "encourages taking on more debt, discriminates against renters, subsidizes one kind of spending over others and favors the upper incomes. It advances the questionable public goal of making more Americans into homeowners," she maintains.

"What we see here is social engineering gone haywire. The federal government should not care whether you buy or rent your residence," she adds, pointing out that Canadians enjoy no so such benefit but own just as many houses per capita.

If the deduction makes it through, would you support a Canadian party that tried to introduce a similar perk on this side of the border?  

By Gordon Powers, MSN Money

Photo: Christa Richert



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...