Before Christmas I had a read of this latest report by the Reason Foundation on the mortgage deduction.
Few public policy issues grind my gears as this one. In this season of goodwill, I’m incredibly thankful to all my friends and colleagues who rent a property and therefore subsidize my lifestyle choice of owning a home. It’s also worth noting that people who can’t afford a home and pay taxes, are sending a gift to wealthier individuals for bricks and mortar. It’s regressive, and patently absurd.
Obviously we have to contend with politics, but getting rid of the mortgage interest deduction (or at least reducing) would be huge as part of tax reform or cutting the deficit.
For policymakers more concerned about the increasing burden of debt that will likely require higher taxes on future generations than the potential negative effects of raising income taxes now, the extra revenue could help to reduce the deficit. According to a report by the JCT, ending the MID without any other income tax adjustment could eliminate as much as $68 billion from the FY2012 federal budget deficit. This would mean a roughly 6 percent reduction in the deficit from a full MID repeal.
And, as mentioned in the introduction, mortgage interest is the largest personal income tax deduction. In 2010, it totaled $394 billion; the next largest deduction was the one for state and local income taxes ($246 billion). The question for policymakers is whether this deficit cutting cash is worth a not-so-tacit increase in income taxes by about 5.5 percent.
Get rid of it. Owning a home isn’t a right, but a lifestyle choice. Subsidizing home ownership distorts the market and allocates wealth from the most needy to the comfortable. But I imagine the banks, realtors, and construction industry might think otherwise.