Governments make money through the taxation of their citizens. The taxable income of a person varies from one nation to another. The money collected through the income tax is quite instrumental in the development and growth of an economy, but many people do not agree with the taxation terms. One of the most controversial issues in taxation is the tax exerted on loan interests. The interest paid on a loan or mortgage is taxable on the creditors’ side; therefore, imposing tax on interests results in double taxation. To ease the burden of taxation on the citizens, the United States Congress included the deduction for home mortgage interest in the internal revenue code (Anderson, 2007).
The Congress included the deduction for home mortgage interest in the internal revenue code for various reasons. First, the Congress intended to encourage homeowners to take mortgages for home development. Mortgages can be devastating at times because people end up spending a lot of income on the repayment of the loans. Additionally, most people take mortgages to improve their homes or build homes in which case they do not receive any income from the mortgage. For this reason, the Congress provided a deduction for the interests to encourage homeowners to develop their personal lives through mortgages (Anderson, 2007). Additionally, the majority of the citizens in the United States of America are small proprietors. The deductions foster business and economic growth for small business owners.
The provision of Home Mortgage Interest Deduction has managed to achieve its intended purpose so far. Many homeowners have improved their homes and personal lives at a reasonable cost. Business people in the real estate business have also benefited a great deal from the provision. Personal incomes of citizens and small business owners determine the general economic stability of a nation. The economy of the United States has grown considerably following the inclusion of the deduction provision in the internal revenue code. Opponents of this provision argue that the inclusion of the code reduces the amount of income that the government receives from the real estate industry (Anderson, 2007). However, the mortgage owners invest in other taxable businesses that allow the government to compensate for the real estate losses. As such, the inclusion of the provision in the code has benefitted both the government and the mortgage owners, thus improving the general economy of the nation.
Loan Interests help regulate the spending habits of people around the world. Most specifically, interests on home mortgage are rather risky because people can easily lose their home if they are not able to pay. For this reason, the deduction of interest from the taxable income makes people lenient and ignorant of the expenses of taking mortgages. Unregulated acquisition of mortgages can affect the economy of a nation negatively. The United States Congress, however, provides limits to how much an individual can subject to deductions. The limits help regulate personal behaviors and prevent the laxity that can result from interest deductions. For this reason, the deductions should be allowed to enhance economic growth in both personal and national levels. Additionally, the deductions will enhance growth and development of the middle class people who are the majority in the United States (Anderson, 2007). Improving the living conditions of the middle class will result in increased personal incomes, hence increased taxable amounts.
Reference
Anderson, J. (2007). Capping the Mortgage Interest Deductions. National Tax Journal, 60 (4), 769-785.