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.