Should the Mortgage Interest Tax Deduction Be Cut?

Alden Wicker
Posted

mortgage interest deductionThe mortgage interest deduction, which lowers the tax bill of mortgage holders, has long been seen as an incentive that helps more Americans afford homes. But is it actually working?

It’s an important question, since the government spends $108 billion a year on this one deduction. With lawmakers mulling fighting over ways to cut spending and raise revenue as the fiscal cliff approaches, it could make a juicy target.

Especially in light of the fact that the people who need the most help affording homes aren’t actually helped by this deduction. 75% of the benefit of the deduction goes to the top 20% of income earners, according to The Atlantic. People who earn over $200,000 get an average benefit of $2,221 for deducting their mortgage interest. Meanwhile, those who make under $30,000 get zero benefit. A typical household that earns between $50,000 and $70,000 gets an average of just $179 in reduced taxes.

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The way it works now, the more you earn, the larger the house you can afford, the bigger the mortgage–and interest deduction–you can take. (That’s one reason this couple cites for their high taxes–they don’t own a home and don’t get the mortgage interest deduction.) Plus, you can only take the deduction if you itemize your tax return, and low earners don’t.

The mortgage interest deduction also disproportionately benefits certain metropolitan areas–San Francisco and San Jose in California, Bridgeport in Connecticut and Suffolk County-Nassau County in New York (A.K.A. Long Island) top the list of wealthy areas that rake in the mortgage deductions every year.

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Given these stats, it seems like the mortgage interest deduction isn’t a way to help Americans achieve their dream of owning a home, but just another loophole that benefits the wealthy–a hot topic this year.

  • Rebecca Nels

    We must be rich then, with our combined income of $70,000 a year. I never knew!

    • ranavain

       It looks like the article describes your income on the high end of “typical,” actually? You’re at exactly the income level that should be in favor of getting rid of the deduction! You get, according to the article, a paltry $200 deduction, while the rest of the taxes you pay subsidize the $2000 deduction on a wealthy person’s vacation home.

      I’m not against a wealthy person owning a vacation home, but why should I, at $40,000 a year, help them pay for it?

  • ranavain

    I definitely think this deduction needs to end. Why are we encouraging home ownership in the first place? More and more it looks like people don’t actually benefit from ownership in the long run, it reduces your mobility and flexibility, and it ensures that you’re on the hook for every needed repair for the rest of your life (not to mention that you have to have hefty savings to make a down payment!)

    Personally, I’d rather pay rent, never have to pay for a repair, and be able to move whenever I want to. There’s no reason why homeowners should get a subsidy for the choice they made. 

    • http://twitter.com/TheLussGroupInc The Luss Group, Inc.

      you are sick!  why are we encouraging homeownership in the first place? what planet are you people from!?  how about this for a concept – you do what you want to do and other people can do what they want to do as long as nobody’s hurting each other but you have some nerve to spout some garbage about the lack of need for private property.  

      • ranavain

         Wow, you are crazy. When did I say anything against private property? If anything, you make my case for me: “you do what you want to do and other people can do what they want to do as long as nobody’s hurting each other.” If that’s the case, why should you get a deduction and I don’t? You made the choice to take the risk of home ownership. There is *no* benefit to the country or community for you doing so. You shouldn’t be penalized for it, sure, but giving you a deduction is the government giving you free money (MY money) for a choice you made that doesn’t help anyone but you.

      • ranavain

         I also wanted to add that… ahem… when you rent an apartment, it’s still private property… it doesn’t magically become a government-owned socialist haven when you don’t personally own the place you live…

  • http://twitter.com/TheLussGroupInc The Luss Group, Inc.

    what is Gods name is wrong with you.  the government doesn’t SPEND anything when I take a tax deduction because I took risk to borrow money to buy a house to become a productive citizen and protect my family so you don’t have to.  i detest people like you with every molecule in my body.  you are deadly to our country.

    • ranavain

       How does your owning a house, instead of renting, make you more productive?

      And the government doesn’t spend money to give you a deduction… but it takes in less revenue. Revenue that could be spent much better than subsidizing your ranting and hate.

    • Geoffrey

      Villanova must not require courses in logic or English composition as a part of their accountancy program.

  • Geoffrey

    Generally speaking, the vast majority of economists agree with eliminating the MID. It’s supporters tend to be those who have a direct economic interest in selling people homes.
    http://www.realestateeconomywatch.com/2012/09/housing-economists-hate-the-mid/

  • Another opinion

    “Why are we encouraging home ownership in the first place?”

    Home ownership actually helps the community as a whole. I think the point has been missed that home ownership has been shown to actually create more jobs and boost spending in the economy.  Further, it is much easier to have a stable population of home owners versus a population that may move at any given point without much advanced warning.  Although home ownership might not be as accessible or as sought after in some metropolitan locales – Manhattan comes to mind – it is a staple in other areas that are less densley populated where there aren’t as many choices for rental properties.

    That being said, eliminating the MID, and many other deductions, may be one step to resolving the budget.  Another benefit of eliminating the MID would be to stop the erroneous belief that you should not pay off your mortgage to keep taking advantage of the deduction, despite spending tens of thousands a year on mortgage interest.  However, I think we also have to look at eliminating other deductions that primarily only the wealthy can take advantage if the point is to make the tax system more fair for people who are not wealthy.
    Also, I am a strong supporter of changing the tax system to reflect cost of living.  $250,000 a year, or $70,000 a year, may not be wealthy in some areas, but in other areas you could live like a king on that kind of income.