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):