Two years ago, the mortgage interest tax deduction (MID) cost the U.S. government $83 billion. In 2010:
- 78% of the $83 billion MID went to households with incomes over $100,000;
- 35% of the MID went to households with incomes over $200,000; and
- the average deduction for households with incomes over $200,000 was $3,916 more than the average deduction of all U.S. households.
This year, the MID cost the U.S. government $100 billion.
Though one of the United States’ most popular tax deductions, the MID has its share of critics. Those opposed to the MID argue it inflates home prices and disproportionately benefits the wealthy.
Congress is currently contemplating proposals to reform the MID, including:
- cutting the maximum principal amount in half, from $1 million to $500,000;
- eliminating eligibility for second homes; and
- converting the deduction to a tax credit, capped at 12% of the amount of interest paid.
MID supporters fear home prices will drop if Congress adopts these proposals. Buyers’ purchasing power will decrease if they are unable to write off interest payments.
A recent poll by Quinnipiac University showed two-thirds of respondents were opposed to eliminating the MID completely.
first tuesday insight
The loudest protesters against MID reform champion it as a homeownership incentive.
However, the MID does not enable Average Joe to buy a house. It enables him to buy more house.
Home prices will decrease without the MID. State and national homeownership rates will not.
As it is, the MID does not foster a social ideal. It simply inflates home prices, baiting homebuyers to overextend their finances with the promise of a partial rebate of their monthly payments.
The calf is fat. If Congress won’t kill it outright, they should at least divvy its rations with more discretion.
What do first tuesday readers think? Of the 237 readers who participated in our June 2012 poll, 83% (196 voters) asserted mortgage interest deductions increase California home sales.
Make your voice heard in our latest MID Reader Poll.
Related article:
Re: “Long-treasured mortgage interest deduction may face changes” from The Los Angeles Times
The last item that should be considered as a budget debt reduction measure is the MID! the MID benefits the middle class. People are still losing their jobs. The housing market still needs help. This is just another tax increase for those who can least afford it, especially for those of us who live in high cost housing markets such as the Bay Area or Los Angeles.
Please people, how can you continue to defend the MID or pettifog the issue it by bringing up a “fair” tax? The argument a couple folks made that it allows people to buy “more house” is plainly false, the amount of MID you would get is not calculated or considered when underwriting a home loan. I, among many, am sick to death of taxes being used as a way to reward and punish, it’s to pay for goods, products and services – period.
John,
Sorry, check your facts – you’re under the same retirement system I’m under after 27 years in the Federal Government – and essentially so is the Congress – no one, Senator or Congressman gets a “full” retirement after serving only one term. They are like us, you build up a retirement based on years of service, and it is not available until you reach the proscribed retirement age (55 and 30 for full benefits). Believe me, I’ve checked this out a number of times for several of my friends and family who read this completely wrong and purposely misleading info on the internet!
Sabina Alberti commented that all government pensions should be cut by 10%, before the sacred cow is sacrificed. Where the heck do you come up with this? I put in a little over 25 years in government service and net $1100 a month in retirement. I’m all for cutting the lifetime benefits of our leaders ($176,000 annually for congress and senate after serving only one term!), but what did I do to you, Sabina, that makes you want to put me even farther down on the poverty level??? This is “Thank you for serving our great country???”
DO YOU GET WHAT YOU WISH FOR?
So many wish for a more “capitalist” society. In pure capitalism the perks, privileges, and tax loopholes would disappear. As society became more and more complex since the founding of the nation in the 18th century, the legislative, executive, and judicial branches of government decided more and more regulations, taxes, and loopholes were in order. They did all this, believing they were “improving” how the machine of the economy ran. But, what was the inevitable side effect of complexity?
As the regulations, taxes, and loopholes increased so did the government that created them—-finally reaching its current massive size. It now employs one of out every 5 Americans and determines the destinies of everyone. In a pure capitalist society (if there ever was such a thing) each and every person would have much more control over his or her own destiny economically, financially, socially, etc. Such is not the case at the present time, as government reaches into all aspects of our lives.
The tax deduction for mortgage interest was created to assist home buyers at the lower end to be able to actually afford the house payments by way of the tax break. It has become a much more complex issue over the years and now will probably get chopped. The bloated government, as others have pointed out, seeks to maintain its own privileges (huge pensions for public employees for one) and is desperate for revenue. It will seek that revenue in any way it can, including, we believe, eliminating or diminishing the MID.
Only if those in power decide it will be, in the long run, to their own advantage to maintain some form of MID will they allow it to remain as a feature of the tax code. They were quick to bail out AIG in 2008 with a massive cash injection and partial takeover. Why? AIG is the provider of insurance benefits to Congressmen.
Power takes care of its own first.
Eventually, human values will evolve to a point where this insider cronyism will not be tolerated, and a massive “cleaning house” will ensue. Those days are not far off.
Do NO more harm to our housing market! It is the backbone to our economy.
Agree with Michael.
One correction: it’s “eminent domain”, and I hope it’s not imminent regarding any private property in the state.
Could not agree more with the first post. Eliminating any feeding of the bloated beast is a plus. The phrase “public servant” has become so perverse, that it now works to consider it thus: The public is a servant feeding the bureaucracy. Protected from economic cycles, and enjoying benefits and pensions rapidly disappearing in the real world, they continue their strategy of divide and conquer to maintain their monster slurp.
If the road to hell is paved with good intentions, our govt. is indeed the autobahn.
I say we should put the MID on the table, as soon as all government worker’s pay and pensions have been cut by at least by 10% and the tax code has been made flatter (where everyone pays at least SOME income taxes, even the 47% who currently pay none ) Fairness anyone?
What does it mean to say “it cost the government”? I thought the government worked for us citizens and taxpayers!
This issue is a much more complicated tradeoff with the consequences to the economy, tax reform (whatever that means), and the impact to the real owners of the U. S., the citizens, homeowners, and tax payers (both income and property taxes), and to the local city, county, state and federal services affected by property values and taxes.
There is a reason these tax provisions were put in place, and dismantling them should be given careful thought!
I completely disagree.
People making more get larger deduction because they buy more house.
It wouldn’t matter (MID) as long as its a constant. Many could only afford a house because of it and will stand to lose their homes. Others invested expecting prices to go up. Such a change will be a financial disaster for investors looking to cash out. If the savings from reducing or eliminating the MID were returned to tax payers equally it would be fine as rents would rise but as a form of additional taxes it will hurt investors and will permenantly hurt the housing industry.
If you want to eliminate the MID fine. However, in return, eliminate the internal revenue code and institute a nationwide flat tax in its place. The only fat calf around here is the federal government.