• Sharebar

Hi,

I understand the impact of the Tax shield. But I was wondering why the Government is effectively paying part of the interrest payments.

What are they trying to achieve with this?

Subsidize Banks :) ?

Thanks

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Comments (8)

  • Quaneaser's picture

    Encourages people and companies to invest which would ideally lead to more home ownership (in the case of mortgages) and more capital investment (in the case of companies). Both create more output in the economy overall which also leads to further tax revenue itself.

  • Asatar's picture

    Encourages debt-fuelled spending which is basically what Western economies run on nowadays.

  • DumbDebtGuy's picture

    Because more leverage = more better

  • jointhebank's picture

    To make cost of debt cheaper, which will encourage more capital spending (usually for expansion or development but sometimes CEO's pay) which will boost economy through increased GDP output, employment, competitive advantage (possibly lead to trade surplus) etc. I think the whole idea is built on trickle-down effect, which somewhat works in the western world but not so much in Asia.

    Being a prospective monkey I am bound to post stupid comments due to my lack of expert knowledge. I implore you to correct me harshly or constructively, and I will appreciate any learning opportunity.

  • Cookies With Milken's picture

    TLDR: It's not just about the money. its social engineering.

    1. If you buy a home, you have to put stuff in it. Whatever the gov't loses via home mortgage interest deductions off individual tax returns they make up in sales and use taxes and income taxes levied on the businesses that sold you those products.

    2. Making it easier to buy a home also makes it easier to start a family. More kids = higher population. Higher population = more tax revenues, larger potential military, larger work force and more people who may eventually buy homes and continue the cycle. That's why everyone in the media is flipping shit over the inevitable end of the boomer generation and rise in the average age of a newlywed. We need kids. Military aside, these little bastards need a new wardrobe every year or two as they age and cost the average family hundreds of thousands of dollars to raise. Kids are expensive, in many cases both parents need to work to support their family. Who raises the kids? Gov't sponsored public education and free network television.

    3. Every mortgage holder is now in debt; more debt then they will ever be in ever in their lives. Pretty nifty way to keep people in line. If you break the law and get sent to jail, you lose your job and proceed to default on your mortgage payments and consequently lose your home and any principal that you had in it. Now your credit score is shot and getting a job after jail time is awfully difficult. In order to raise your credit score you need a job and in order to get a job you need a credit score and / or a clean record. Ain't that a bitch. Seeing as how our local police forces aren't quite at the "Minority Report" level we use heavy penalties as a crime deterrent since prevention is damn near impossible.

    4. Once you own property it becomes part of your taxable estate. Accumulate enough coin over your lifetime and the death tax hurts. If you inherit a home from your parents and can't afford to keep it you sell it. Now you're paying tax on the sale of gifted property. Your basis in the property gets stepped up, which helps minimize the tax effect on the kids, but pushes up the value of your estate. Estate tax rates are higher than regular income tax rates.

    No such thing as a free lunch

  • aempirei's picture

    To spur investment.

    /thread

    My name is Nicky, but you can call me Dre.

  • SirTradesaLot's picture

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