Take Away My Home Mortgage Interest Deduction

I doubt that most Americans would want to subsidize housing for the wealthy. And I doubt that very many members of Congress would defend subsidized housing for the affluent. But if that’s true, then why are we in fact subsidizing housing for wealthy people? Not only are we subsidizing housing for the wealthy, we’re doing it to the tune of billions of dollars a year. This can’t possibly be a good thing, and we should stop it.

The source of this subsidy is the home mortgage interest deduction. While it may provide a modest tax break for some home buyers, the benefits go disproportionately to those who need it the least—or not at all. The median home price in the U.S. is slightly more than $200,000[1], but the deduction applies to mortgages of up to $1 million. Only wealthier people who can afford expensive homes will be able to take advantage of the full potential of the deduction. And because the benefit is structured as an income tax deduction, those in the higher income tax brackets get a bigger boost: a person making enough to be in the top income tax bracket of 39.6% will save almost 40 cents for each dollar deducted, while a school teacher or nurse making far less would save only 25 cents on the dollar. And the deduction even applies to second homes, which are bought mostly by more affluent households.

Because of these factors, those at the top end of the income scale get most of the benefits from this provision. According to a 2013 CBO report[2], over half of the benefits from the home mortgage interest deduction went to the top 10% of income earners, and 15% of the benefits went to those in the top 1% of income earners. With an estimate of just over $1 billion in the total value of home mortgage interest deductions for 2014-2023, that means an average total tax break of about $100 billion a year with $15 billion going to those in the top 1%.

That $15 billion could be better used for, well, just about anything else. It could go towards rebuilding and repairing our crumbling roads and bridges. It could help reverse reductions in food assistance for the needy (I find it hard to defend subsidizing housing for the wealthy while saying we can’t afford to maintain food assistance for the poor). For budget hawks, it could go toward deficit reduction. Or it would be more than enough to fund a robust public campaign finance system which could give our representatives the fortitude to go after other wasteful benefits and loopholes defended by special interests and save taxpayers even more money. If we set that $15 billion on fire, at least it might help to keep someone warm. But it’s hard to think of a more wasteful purpose than to give it to wealthy people who would almost certainly continue to buy their homes without it.

And there are no good reasons why the home mortgage interest deduction can’t be reformed today. Democrats don’t favor giveaways to the rich and Republicans are supposedly pro-free market, so they should both support allowing the top-end real estate market work without the market-warping influence of subsidies. Realtors and home builders might complain, but I seriously doubt that the luxury home market needs a subsidy since the wealthy in this economy are doing better than ever. Some people may say that narrowing this deduction to those who could really use it will have to wait for comprehensive tax reform, but that position is just a dodge. Congress has changed the tax code with greater consequences without waiting for comprehensive reform, and there’s no good excuse for waiting here.

There are a number of suggestions for better targeting the home mortgage interest deduction. The bipartisan Simpson-Bowles commission recommended that it apply to mortgages of up to $500,000 instead of the current $1 million, which would leave most home buyers unaffected. The benefit could be changed to a straight tax credit instead of a deduction, so that the wealthy won’t get a bigger break per dollar than the less affluent. While those changes would reduce the amounts going to the wealthy, they would still receive an unneeded benefit, so I’d like to see means-testing that phases out the benefit entirely for those with very high incomes. And it certainly should not apply to second homes. But inaction is simply not justifiable, especially given our nation’s fiscal situation and societal needs.

I make these arguments as one who currently receives the home mortgage interest deduction but does not need it. Because of the deduction, I took out a mortgage I didn’t need for a home I was going to buy anyway. While I’m glad to have the tax break, I don’t understand why the general public is subsidizing housing for me and others like me. So please, Congress, take away my home mortgage interest deduction. Even with today’s divided politics, surely we can agree that people making over $430,000 a year (the approximate cut-off for the top 1% in 2015)[3] don’t need the government’s help to buy a home.


[3] The nonpartisan Tax Foundation, using IRS data, determined that $428,713 was the income cutoff for the top; 1% in 2015. http://taxfoundation.org/article/summary-latest-federal-income-tax-data-2015-update

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