“In this world, nothing can be said to be certain, except death and taxes." – Benjamin Franklin
Benjamin Franklin was correct saying that, but while the taxes were certain it could not be said the same about their consistency. For a long period after its establishment, America was a tax-free country that meant it was free from direct taxes as the income tax. After the revolutionary war the new established government as more cautious about the taxes. While the direct taxation was prohibited by the Constitution, the government had to collect its revenues through tariffs and other duties on certain items. As late as 1913 the Sixteenth amendment to the Unites States Constitution was adopted and introduced, removing the proportional to population clause and thus saving the poor people at the IRS from the line of the unemployed. An income tax imposed on people with an annual income of over $3,000 quickly followed after that and the tax law marked its rapid development in all spheres of peoples’ lives.
The present research will be engaged, in particular, with the establishment and the development of the mortgage interest credit. It was adopted with the only purpose to help the people with low income to buy homes.
Before the enactment of the Tax Reform Act of 1986 (TRA86), it was possible to deduct the interest on all personal loans (including credit card debt). That wide deduction was eliminated by TRA86, but it a narrower deduction of the home mortgage interest was created intending to encourage home ownership. The United States allows a deduction of home mortgage interest with several limitations under 26 U.S.C. § 163(h) of the Internal Revenue Code.
The buyer of a first-time home whose income is, in general, below the middle income for the area of the home is eligible for mortgage interest tax credit. The credit is oriented to help the individuals with lower income afford to own a home. A tax credit is allowed for every single year for that part of the home mortgage interest which is paid by the home owner. Any deduction of the mortgage interest is reduced by the amount of the credit taken.
` In order to be eligible for the credit, the buyer must be provided with a mortgage credit certificate (MCC), issued from his state or local government. Generally, an MCC is issued only in connection with a new mortgage used for the purchase of a primary home.
There are lots of pros and cons about this mortgage interest credit and the way it is implemented. For example, the National Association of Realtors (NAR) strongly opposes the idea this tax deduction to be eliminated stating: “Housing is the engine that drives the economy, and to even mention reducing the tax benefits of home ownership could endanger property values.” (NAR)
In his article, Who Benefits from the Home Mortgage Interest Deduction, Gerald Prante writes that nevertheless the objections of different groups that the deduction of mortgage interest in buying homes is a very important factor that promotes the ownership of homes, the data in IRS studies show that the biggest part of the claims for mortgage interest deduction are made by a comparatively small group of citizens with incomes much above the average. He makes the conclusion that the deduction in the first place encourages the purchase of more expensive and larger homes that are bought by small contingent of taxpayers, instead of promoting the purchase of homes among the ordinary citizens. (Prante)
A conclusion can be derived that the Tax law, as every other law, is good and useful if it is applied properly by both, taxpayers and government. Usually it answers the requirements of the time it serves.
Works cited
Defending the Mortgage Interest Deduction, National Association of Realtors, 2013. Web. 24 Feb. 2016.
Prante, Gerard, Who Benefits from the Home Mortgage Interest Deduction? The Tax Foundation, 2006. Web. 24 Feb. 2016.
