WASHINGTON - Southern Minnesota doesn't have any ocean shoreline or a constituency of high-end yacht owners, and maybe that's why DFL Rep. Tim Walz has introduced the Ending Taxpayer Subsidies for Yachts Act.
The bill would prohibit boat owners from taking the mortgage interest deduction on their vessel by claiming it as a second home.
Walz introduced the bill jointly with Reps. Mike Quigley (D-IL) and Gary Peters (D-MI).
Boats equipped with bedding, toilets and a kitchen are considered to be equivalent to houses under the tax code.
In a press release, Walz's office noted that more than 500,000 boats were large enough to qualify for the tax credit in 2004 even though just 100,000 Americans live on boats full time.
"If you're buying a $3 million yacht, you're probably not looking just for the [mortgage] interest deduction," said Walz during a brief interview with Minnesota Public Radio News.
He conceded that the bill's purpose was mostly symbolic, saying, "It's a bill to show that this tax code and some of our problems, aren't just the middle class's issues."
Under the Waltz proposal to eliminate the interest deduction for yachts as a second home, fairness indicates RVs should also have their interest deduction eliminated. I would remind Rep Waltz that most "yachts" are a long way from the million dollar class. Thousands of MN boat owners with port a potties aboard would agree. Never the less if eliminating the interest deduction for second homes that happen to float at times other than during floods is the program, then consistent policy is important. On again off again tax deductions are bad economics.
The mortgage interest deduction (MID) is truly one of the worst, most pernicious features of our income tax code. Not only does it encourage excessive investment in homes, it encourages doing it with debt. The MID didn’t cause our crisis, But it is symptomatic of our fondness for endless subsidies and distortions to promote home ownership, which did ultimately produce our crisis. The MID is almost impossible to defend on distributional grounds. It only goes to people whose income is high enough to merit itemizing deductions, and its value rises with their tax bracket. The right way would be to replace the MID with a tax credit so that the benefit does not rise with level of income. Better yet, make it a tax credit for buying a home, not for getting a mortgage; so that it does not discriminate in favor of leveraged home purchases.