McMansions and the Carbon Tax
‘œThe houses that he makes last till doomsday.’ ‘“ William Shakespeare
Here’s one to throw the McMansion crowd into a tizzy on a Monday morning. Kenneth R. Harney at the Washington Post writes, ‘œTo add to the mortgage meltdown miseries, the credit panic, the plunging home sales and the rising foreclosures, here’s a new worry: a proposed cutoff of mortgage-interest tax deductions for houses with more than 3,000 square feet.’
Most homeowners, including myself, love their mortgage-interest tax deduction. In the era of the jumbo loan, people will be losing sleep about the prospect of losing this deduction on their jumbo home.
John D. Dingell (D-Mich.), the chairman of the House Energy and Commerce Committee, will likely introduce the ‘œcarbon tax’ bill when Congress returns next month. Harney writes, ‘œBesides imposing hefty new federal taxes on gasoline, the forthcoming bill would, in Dingell’s words, seek to ‘˜remove the mortgage interest deduction on McMansions — homes over 3,000 square feet.’ Dingell said he recognizes that such a proposal will spark much criticism, but he also said it is essential to reducing carbon emissions by 60 percent to 80 percent by 2050.’
‘œThe interest deduction is one of the biggest tax benefits in the federal budget, according to the congressional Joint Committee on Taxation. From fiscal 2006 to 2010, according to a committee study, federal revenue losses attributable to the mortgage interest deductions are expected to total $402.7 billion. Other federal studies have documented that the benefits of the write-off are heavily skewed toward higher-income taxpayers who have larger-than-average mortgages.’
‘œOver the past two decades, occasional proposals have been made in Congress to rein in the deduction — say, by limiting it to mortgage amounts of less than $300,000. But the write-off has never been seriously endangered because it is so popular with taxpayers and has fierce support in the banking, real estate and construction industries.’
A couple of weeks ago, Matt Carter at the Inman News Blog quoted Dingell in a Detroit Free Press article: ‘œThese are all new ideas. I know I’m going to catch hell for them’¦ but we have to make consumption more expensive if we’re serious about global warming’¦ We need to do things that are difficult, costly and will require sacrifice from all of us.’
Carter continues, ‘œThe National Association of Home Builders predicts that while average home size will remain around 2,400 square feet for the next decade, the typical ‘˜upscale’ home will be 4,000 square feet by 2015. According to the U.S. EPA, the energy we use heating, cooling and lighting our homes (and running all those appliances) accounts for close to 17 percent of total U.S. greenhouse gas emissions.’
I don’t like big houses. And if I were single, I honestly think I could be happy living in a Tumbleweed house. Jeanine wants a little more space and then you toss in the cat and possible kids and we’re just like the rest of America’¦ emitting greenhouse gases.
Our house is less than 2000 square feet so we are in the clear of Dingell’s proposed legislation, but that being said, I like the deduction, benefit from it and don’t want it to disappear.
Gerald Prante at the Tax Foundation had a few thoughts, ‘œThis plan is likely not going anywhere on Capitol Hill, especially with any provision that would cut back the [mortgage interest deduction], which would send the lobbyists of the Realtors and home builders into a frenzy. But it does bring up an interesting question of how the current [mortgage interest deduction] system, which supposedly is designed to promote homeownership, can actually have negative externalities (i.e. pollution or greenhouse gas emissions) that likely exceed any positive external social benefit from marginally larger homes.’
‘œIf we are truly trying to promote homeownership in general and not necessarily bigger homes, why should the tax savings be an increasing function of the costs of the house (and thereby the size)? Why not just have HUD write a check to each homeowner in America for $1,000 irrespective of the size of the home? But then again, that would expose [mortgage interest deduction] for what it really is: welfare for homeowners and those in the real estate sector.’
Hmmm’¦ welfare for homeowners’¦ I hadn’t ever heard it described this way before now. So how do we find the balance between those big bad houses and the environment? We would love to hear your thoughts below.
Ultimately, the greenhouse gas emissions come from the power plants producing electricity for the houses and for everything else. 50% of the power in the US comes from coal-burning plants, with almost another 20% coming from natural gas.
So, although I don’t necessarily want the mortgage deduction to persist (I’d rather see our current tax system replaced with a flat tax than continuing a system where special interests constantly fight for their own deductions), specifically targetting homeowners and trying to get them to buy smaller homes seems kind of silly. How much of that 17% of US greenhouse gas emissions do we expect to eliminate using this plan? 2%? If it was any more than that I’d be surprised.
How about just fixing the root of the problem instead – replacing fossil-fuel power plants with other solutions. There are actually some “clean coal” technologies in the works, but failing that there’s always hydrogen or good old nuclear power. As long as we have power plants that spew carbon dioxide, power consumption by homeowners or anyone else is going to cause greenhouse gas emissions.