Ben S. Bernanke says he can’t refinance his house. With his book advance and speaking fees, why does the former Federal Reserve chairman even want a mortgage?
Even for the wealthiest Americans who can afford to buy their houses outright, mortgages come with a double benefit: interest rates low enough that returns on investments can beat them, and a tax subsidy that covers nearly half the interest cost.
A 15-year loan carries a 3.36 percent interest rate this week, according to Freddie Mac. And at the top federal and Washington, D.C., tax rates of 39.6 percent and 8.95 percent, the mortgage interest deduction reduces Bernanke’s real cost of borrowing even further.
Bernanke’s situation highlights a flaw in the tax code, said Harry Stein, associate director for fiscal policy at the Center for American Progress, a Washington group typically aligned with Democrats.
“He can do better investing the speaking fees in the stock market than using them to pay his mortgage and own his house outright,” he said. “I can’t imagine the public policy case for subsidizing leveraged investment for affluent people and there’s just no world in which that makes sense.”
Speaking at a conference Thursday in Chicago, Bernanke lamented tighter credit rules and said he’d been unsuccessful in trying to refinance his own home loan. “I’m not making that up,” he said when the audience reacted with laughter.
Bernanke, 60, didn’t explain why he wants a new mortgage or elaborate. D.J. Nordquist, a spokeswoman at the Brookings Institution, where Bernanke is now a fellow-in-residence, said he was traveling and unavailable for comment.
As of Dec. 31, Bernanke had a 30-year loan with a 4.25 percent interest rate, according to a disclosure form he filed this year as he was leaving the Fed. He and his wife, Anna, took out that $672,000 loan in 2011 on their Capitol Hill rowhouse, which is assessed for tax purposes at $906,490.
With a net worth of $1.1 million to $2.3 million, income of $150,000 to $1.1 million from textbook royalties in 2013, the speaking fees he’s earned since leaving office and a book advance, Bernanke probably could pay off his mortgage and be debt-free.
Many of those assets, however, are held inside retirement accounts. At his age, Bernanke could withdraw them without penalty, though he would have to pay taxes and isn’t required to begin taking the money out until after age 70 1/2.
Because marginal tax rates increase with income, the benefits of tax deductions are concentrated among higher-income households.
According to the Congressional Budget Office, 73 percent of the benefits of the mortgage interest deduction went to the top 20 percent of taxpayers in 2013. And 15 percent of the benefits went to the top 1 percent.
Many high-income taxpayers are subject to the alternative minimum tax, which has a top marginal tax rate of 28 percent. That reduces, though doesn’t eliminate, the mortgage-interest deduction. It can get even more complicated for people with home-equity loans.
President Barack Obama and House Ways and Means Committee Chairman Dave Camp have both offered proposals that would effectively cap the benefit of the mortgage deduction and other breaks for the highest-income taxpayers. Neither plan has advanced amid gridlock on tax policy in Congress.
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