End the mortgage interest deduction
July 18, 2012 5 Comments
Great post from Matthew O’Brien at the Atlantic over just how regressive this tax benefit is. This chart really demonstrates the fact:
It’s no secret the mortgage-interest deduction is regressive. Richer taxpayers have 1) houses, 2) bigger houses, and 3) get bigger deductions because their tax brackets are bigger. But the bad policy doesn’t stop with subsidies for those who least need them. There’s also the small matter of incentivizing leverage. In other words, households that take on more debt get more of a tax break. That’s a head-scratcher in our post-bubble world.None of this has been a secret for decades. The mortgage interest deduction was rotten policy in the 1980s and it’s rotten policy today. Back then Michael Kinsley made the case against this taxpayer sacred cow — along with his classic definition of a gaffe — when President Reagan hinted at eliminating it. Spoiler alert: We didn’t. Three decades on, it’s depressing how much of Kinsley’s analysis reads like it was written today.We spend $100 billion every year — that’s the annual cost of the deduction — subsidizing bigger houses for the upper middle class. This should be among the lowest of low-hanging fruit when it comes to tax reform. It would be nice to end welfare for the well-off.
Ahhh, “should be” indeed. Alas, I think it’s fair to say that the upper middle class and above have more than their fair share of political influence and like this break. And most everybody else probably figures that it benefits them much more than it actually does. I still remember when I first became a homeowner in Lubbock, Texas– where housing prices are jaw-droppingly low– and was quite surprised at how little benefit we received from this deduction after hearing all my life how great it was. Now, if we had been able to afford a half million dollar home (which basically buys you a castle in Lubbock) things would have been different.
About Steve Greene
How about we offer a deduction that grows as the level of equity in the home grows? We could cap the total amount for homes under $300k or $500k. Problem solved. Your welcome.
BTW – $100 billion is more money than it will cost to provide health care to +33 million people through Obamacare.
Interesting idea. Probably not as good as ending the deduction entirely, but it’s a compromise.
Of course, as your equity grows, less of your payment goes toward interest, so this would keep the deduction more flat over the life of your mortgage.
Love it!
Have you ever heard of the Alternative Minimum Tax? The rich can’t take this deduction because they earn too much. However, lower middle class benefit from the mortgage deduction. Bad article, sorry.
Ummm, yes, I have heard of the AMT, and it doesn’t change the data in the chart above.