Why the Mortgage Interest Tax Deduction Has Got to Go

The mortgage interest deduction costs the federal government much more than rental assistance for low-income people.
The mortgage interest deduction costs the federal government much more than rental assistance for low-income people.

While the Trump administration pursues massive cuts to HUD that threaten urban neighborhoods, especially poorer ones, there’s one form of housing assistance that the White House is much less enthusiastic about reducing: the mortgage interest tax deduction.

The mortgage interest deduction costs the federal government more than all rental subsidies combined, writes David Meni at Greater Greater Washington. And all that money promotes sprawl by encouraging people to buy more house, while transferring wealth to the upper tiers of the income ladder.

While there is bi-partisan support among think tanks for reforming this tax break, the politics of overhauling such a massive giveaway to the affluent are exceptionally difficult. Meni breaks down why the mortgage interest deduction is so regressive:

The MID is currently projected to be a $96 billion program by 2019. And as we recapped in that earlier post, nearly all of that spending goes to high-earners with large mortgages.

This staggering inequity is because of how the benefit is designed. You can only claim the deduction if you itemize your expenses, something that only those with higher incomes tend to do. As a result, the value of the benefit actually goes up as your income rises. This means that the MID actually incentives mortgage debt, rather than homeownership — you get a larger benefit if you have a more expensive mortgage.

As a result of all these policy design choices, someone making millions of dollars a year — even if they have multiple homes — gets an average of $1,236 per month from the MID. That could cover most or all of a month’s rent for low-income households, whose average share is just eight cents, if they can get the benefit at all.

For someone with a $1 million mortgage, the MID means that the federal government gives you back about $22,000 a year — enough to push a family of three above the poverty line.

More recommended reading today: Streets.mn says the focus on “distracted walking” is a distraction from the real threats that make walking so dangerous. And Bike Portland reports on some good news from Oregon state legislature which should clear the way for a 20 mph default residential speed limit in the city.

  • SFnative74

    Good for you. Your level of conceit is remarkable.

  • John Murphy

    If I can see over mountains it’s only because I stood on your shoulders.

  • EC

    I’m a homeowner who benefits personally from the MID, but I am against it as a counterproductive giveaway to the upper middle class. Getting rid of the MID is hardly socialism; it’s sort of the opposite.

  • EC

    8th graders did not have the same education as 12th graders today. Test scores on virtually every test have gone up since then.

  • EC

    I own a home and save money because of the MID but I am against it.

  • Kenny Easwaran

    This sort of change definitely shouldn’t be done instantaneously, because of all the harm to people like you who legitimately planned for current policies.

    However, it seems quite reasonable to plan for a future with no mortgage interest deduction, by stating that the deduction will phase out over 30 years, with the maximum amount people can deduct each year going down in the same curve as current mortgage interest payments go down.

  • Kenny Easwaran

    No one’s talking about imposing an extra tax on rich people. They’re just talking about ending subsidies to homeowners. Give the *same* subsidies to *everyone*, not just homeowners.

  • Robert Munson

    Ditto on Andre L….The mortgage deduction needs to be reduced gradually; starting as an attack on the wealthy who don’t need a subsidy. But as the deduction is reduced for the less fortunate, it hits a wall because the National Association of Realtors owns too many Members of Congress. Until there is campaign finance reform, issues such as this simply will not be resolved economically.

  • K Webster

    Before my ex and I were married, she claimed she liked the sub-prime loan rate, because “it was the only time I ever got a tax refund”. So, paying (then) 11% interest is good, because you get a tax refund?! Don’t you realize you’re spending much more money than necessary just to get a ‘feel-good’ refund at the end of the year.? Different attitudes in money management is one of the big reasons we are no longer together.

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