The MID: Robin Hood in reverse

Use of the mortgage interest tax deduction (MID) varies widely by zip code, according to a recent report by PEW Charitable Trusts. The report looked at the number of all homeowners who claimed the MID and the average amount of interest deducted by zip code.

Unsurprisingly, the report found both the greatest concentration of MID use and amount occurs in areas with the highest property values. About one fourth of all tax filers in the U.S. and fewer than 50% of all mortgaged homeowners claim the MID. On the state and local levels, however, the distribution of tax filers claiming the deduction varies widely, as does the amount claimed.

Check out this interactive map on PEW’s website to see how much your local market benefits from the tax subsidy.

first tuesday insight

So, PEW has told us what we’ve known all along: the MID benefits the rich and highly leveraged.

This study comes at a time where the country faces a seemingly insurmountable national debt due to revenue shortfalls. There is endless talk about “closing loopholes,” “broadening the base” and, dare anyone utter the words, raising taxes. One of the sacred cows of the U.S. tax code that may take a fall in this imbroglio is the MID — it’s studies like this that prove the MID ought to be the first to go.

Related article:

MID teeters on the fiscal cliff

In 2011 alone, the U.S. lost roughly $72 billion in tax revenue due to the MID. As we know, the amount of this “savings” going to first-time and low-tier homeowners is very low. The lion’s share goes to those with huge mortgages and second homes.

It’s not so much that the deduction is benefitting those who don’t need it — although that does raise our hackles. Ultimately, that’s a moral judgment we’ll leave to those at the “fair and balanced” news outlets.

Our point is the MID is not accomplishing what it claims to. The rhetoric propping up the MID boasts that it encourages homeownership and provides a subsidy for middle-class homebuyers. But the MID only substantially offsets mortgage costs for those who would be buying real estate anyway!

Related article:

The mortgage interest tax deduction: working class regression

It’s time we get real about the MID and accept it for what it is: a subsidy to lenders and builders to inflate low- and mid-tier home prices with the residual advantage going to those few with jumbo loans. In other words, the MID robs from the poor and gives to the rich!

Re: “Use of mortgage interest deduction depends on where you live” from the New York Times