The chatter on the Interwebs lately is that a law that has been sacrosanct for generations, the right of a homeowner to deduct their mortgage interest on their income taxes, is now in jeopardy due to the fiscal cliff we collectively face in the wake of the Recession.
What a shame.
It is a shame for many reasons, not the least of which is that politicians, in their passion to get reelected, will fix anything that isn’t broken to say they did something. It is a shame because many of my own colleagues, a measure of whom are in low cost markets where they would personally be unaffected, are ambivalent about a change in the law.
The mortgage interest deduction (MID) has been in place since 1913. It has enabled generations of Americans to secure their futures. It is a promise in place that has been the incentive for millions of current homeowners to buy. I’ll restate that: The mortgage interest deduction is a presupposition that millions of people counted on to make the 6 and 7 figure decision to buy their current home. It factored onto choosing to own, what price to pay, and what community to choose. Taking it away breaks a significant promise.
What most people do not realize is that when they buy a house with a 30 year mortgage, they pay twice the amount of their loan over that period is just interest. Forget the current rates; they are a blip. If you bought a house 5 years ago at a 5.5% rate and borrowed $300,000, you’d pay back $613,000 back not including your property taxes. That is $313,000 in interest. When rates inevitably raise again from the current anomaly, people could pay back triple, not double, their principal due to interest.
In the above example, a borrower in a 25% tax bracket would pay roughly $16,000 in interest their first year and be able to save $4,000 in taxes (for clarity, speak to a CPA. I don’t advise on taxes. To say the numbers are perfunctory is an understatement). Some politicians see that and salivate. Some holier than thous scream an unfair subsidy. They are mistaken. That deduction is a 100 year old promise, and that homeowner puts that money right back into the economy- they buy lawnmowers, put on new roofs, update the bathroom, and thousands of other things that have made strong home ownership the cornerstone of a stable economy.
That is not my hot air. It is a fact. Don’t take my word for it, take Franklin D Roosevelt’s. One of FDR’s enduring legacies is the Federal Housing Administration, because even the liberal FDR knew that the get out of the Great Depression, housing had to be strengthened. FDR wouldn’t support removing the MID, not did Truman, Eisenhower, JFK, LBJ, or anyone else that followed. And for good reason. It was never part of the problem. The MID didn’t cause the crash, and indeed enabled more people to stay in their homes when times got tough.
Removing the MID not only breaks our word as a society, it destabilizes housing, which is the reason the whole Great Recession started in the first place. Removing the mortgage interest deduction puts millions of people counting on that money thousands of dollars behind, creating more distressed borrowers and cutting off commerce from other sectors because the money that would otherwise circulate is no longer there. And the distress caused for current home owners doesn’t even speak to the repercussions on those who might otherwise buy. Affordability would be lowered. Tax advantages would be undermined. The buyer pool would shrink. Values would decrease. Foreclosures would increase. Sound familiar?
If there is anything we should have learned from the past 5 years it is that a stable housing market is necessary for a stable economy. Disrupt housing and you get a hot mess. Those who are old enough to recall the 3 headed monster of the late 80’s and early 90’s will see a parallel: The Savings and Loan crisis, a Wall Street crash, and then a housing bust lead to a recession from which all too few lessons were learned. The MID was not on the table then; The FDIC absorbed the FSLIC, freely assumable FHA mortgages were converted to requiring approval, and the economy improved incrementally. Ability to buy and keep was never touched. No recovery ever touched it. We should not change that.
We should learn from history, not tempt fate. If anything, housing should be strengthened and bolstered to ensure stability going forward, and not viewed as a kettle from which money can be dumped into the great vacuum of government. Preserving the mortgage interest deduction will keep housing, and a sustainable recovery, stable.
Mark Zuckerberg is the John Wilkes Booth of Privacy
As a guy who is required by statute to respect the confidentiality of those who hire me, I can only shake my head at the violence done to online privacy by the current wave of popular Internet platforms. I don’t recall much of a hubub about privacy in the days that widespread use of the web was relatively new in the 90’s; “netiquette” and admonishments to never give out personal information were the rule of the day, and my biggest headaches were spam and discussion group trolls on the old NY Yankee message board. But as the children of that era grew up and the ads in my sidebar began to eerily reflect the content of my writing, it became clear that privacy was flat-lining.
I place the blame squarely on the shoulders of the Mark Zuckerbergs of the world. I cannot expect a 20-something to share my mid 40’s world view. But they can listen, and I don’t believe that Mr Zuckerberg does. I think he is focused solely on short term figures while he is putting out fires like the Facebook IPO headache and recent Instagram debacle, where the idea of good faith took a serious body blow. But beyond that he has such a deaf ear to Facebook users that it is sad. I do understand this (but I don’t excuse), because when I was 25 my concept of privacy was little more than making sure the men’s room stall was closed.
I didn’t get medical privacy because I was healthy.
I didn’t worry about my children’s likeness being in the wrong places because I had no children.
I didn’t worry about online privacy because when I was Mark Zuckerberg’s age a cookie was something you ate.
I didn’t get financial privacy because I was broke.
Interestingly, on that last point, when I was 28 an irate neophyte landlord crossed the line the day I moved out of my apartment. He boiled over in anger over some minor damage to plaster walls, and, in front of my brother, groused how betrayed he felt that I caused damage in the apartment after giving me a chance with my bad credit and all. The damage was probably $50. But I couldn’t get over his big mouth (especially in light of the fact that my credit was actually about average for my age). He deliberately embarrassed me, and I never forgot the incident. It was one of those life experiences that I seriously doubt Mark Zuckerberg can relate to.
Perhaps the biggest casualty of the Zuckerberg culture is the wave of younger people with a voice who, like Mark himself, just don’t get it, because they have no experience. How could they?
Take for example a minor phenomenon from this past summer when recent Iowa grad Cathryn Sloane got criticized when she wrote an article entitled Why Every Social Media Manager Should be Under 25. The article generated over 600 comments, the vast majority of which ranged from critical to enraged, and thousands of shares across the ‘Net. While privacy was not a topic, the myopia that comes with lack of perspective was center stage. In Ms Sloane’s case she has more or less disappeared, which is unfortunate because I think she meant well.
More emblematic of the problem is Sam Biddle of Gizmodo in his rant Stop Whining About Your Personal Data on Instagram You Little Whiny Baby. In it, the 2010 Johns Hopkins grad basically tells us all that our photos suck, Instagram has to make money, and that’s how capitalism works, so eat it.
I am a capitalist. Sam Biddle is wrong. One of the basic underpinnings of capitalism is good faith, and Instagram’s unilateral terms of service change-since revoked- urinated on that idea. Privacy was another casualty. Instagram tried to annex private content, and were it not for the backlash I could see photos of my children meant only for the eyes of select friends out in the open, with no attribution or compensation. That makes my old landlord look like Santa Claus. And guess who owns Instagram? Mr Zuckerberg’s Facebook. Instagram recanted, not because they listened to users, but to their bottom line when high level accounts like National Geographic went dark.
I would bet my own good faith capitalist money that Mr. Zuckerberg will have a far different attitude about privacy the day he becomes a father. I’d like to know how he’d feel if he saw his child’s likeness in a sidebar ad. We’ll see how he feels when he’s older and sees a pharmaceutical ad above his email for a medical matter he’s dealing with. I’d love to be a fly on the wall when he posts a photo of his family out to dinner and it defaults to geo-locating him and some whack job accosts him.
The crux of the matter is default settings on social media that require elaborate opting out of disclosure rather than opting in. And the culture it has created is philosophically at odds with the prevalent attitudes when the Internet rose to prominence. This is unfortunate, because those of us who are older and wiser are forced to deal with the ignorance and sass of younger users like this comment screenshot on a video where Zuckerberg hems and haws like Ralph Kamden when addressing privacy.
What these people don’t grasp is that it wasn’t always that way. Privacy was valued. It was expected. It was a promise. Were we naive? Perhaps, but we weren’t an exhibitionist generation either, where everything we did or saw found itself on social media from childhood on. As demographics change and Gen-Y becomes more influential, privacy will hurtle toward extinction because those killing it never knew to value it. For this I blame Mark Zuckerberg, because he did more to create a generation that marginalized privacy more than anyone else. And he didn’t listen.
That is too bad because listening would be good for business. The majority of people buying and selling Facebook stock aren’t 25. And I know slews of people in theirs 30’s to 50’s who eschew Facebook and most social media because they don’t trust it. These people were early adapters of AOL and other earlier platforms. They have discretionary income. They are tech savvy. But they aren’t going to play in Zuckerberg’s sandbox. Perhaps someday Facebook will wake up and learn that good faith, respecting privacy and doing the right thing are the best ways to do business. I get the feeling right now he’s just listening to his own headlines, not realizing that the media loves one thing more than building you up, and that is tearing you down. If I were Mark Zuckerberg I would start to seriously listen.
Mark Zuckerberg gets hot under the collar over your privacy issues and sweats
http://www.youtube.com/watch?v=o3hu3iG8B2g