Explaining the Mortgage Interest Deduction – Paul Waldman

05 Dec
I doubt that the Mortgage Interest Deduction will be touched during this austerity/deficit mess that congress is in the middle of now,…. political suicide.
But some interesting information.
And, of course, we see who realizes the greatest benefit.  Who woulda thought.

Explaining the Mortgage Interest Deduction

Despite the almost universal condemnation of economists, the deduction has survived every round of tax reform in the last century. It has some powerful defenders, most notably the National Association of Realtors, one of Washington’s most influential lobbying groups (realtors obviously have an interest in inflated home prices, which increase their commissions). It also survives because members of Congress aren’t exactly eager to tell millions of voters that their tax bills are going to increase by thousands of dollars. According to the Treasury Department, the mortgage interest deduction cost the government $86.9 billion this year, and the number will top $100 billion next year. Over time, more of those benefits have gone to wealthier Americans. You can deduct interest on mortgages with a value of up to $1 million and home equity loans up to $100,000. The wealthier you are, the bigger your mortgage (most of the time), and the higher your income tax rate, making each dollar of deduction more valuable to you. That means the MID is a regressively distributed benefit. To borrow an example from the Center on Budget and Policy Priorities, a banker with a $1 million mortgage paying $40,000 in interest gets a government housing subsidy of $14,000 every year; he pays 65 cents of every interest dollar on his mortgage, while the government pays the other 35 cents. On the other hand, a nurse who makes $60,000 a year and pays $10,000 a year in interest will only get a $1,500 subsidy; she’ll pay 85 cents of every interest dollar on her mortgage while the government will pay the other 15 cents.

So this is how the benefits of the mortgage interest deduction end up being distributed (the data come from the Joint Committee on Taxation):


Posted by on December 5, 2012 in Economy, Politics


2 responses to “Explaining the Mortgage Interest Deduction – Paul Waldman

  1. drugsandotherthings

    December 5, 2012 at 10:01 am

    Well, one simple change that should be made immediately- restricting the deduction to ones primary home. While it would be a small savings to the taxpayer, there is no point in giving this break to peoples vacation homes…their 2nd, 3rd, even 4th or more homes. Homes which are often more expensive then the average americans home.

  2. h2dog

    December 5, 2012 at 10:31 am

    That sounds reasonable to me. And like you say,.. simple. But it’s messin’ with a “money” guy’s domain by definition, … so they’ll fight it tooth and nail.
    There are innumerable ways to tweak things without robbing the poor and the average person of much needed benefits.
    But the d-bag republicans seem to always want to characterize everything they don’t like as being a waste of time because it “won’t fix the problem”. You know,… ALL of it.
    The concept of cut a little here, and add a little there, doesn’t seem to register.


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