Wednesday, December 12, 2012

Reconsidering the Home Mortgage Deduction

From the Atlantic:

The home mortgage interest deduction...costs the federal government (in lost tax revenue) more than Washington spends on the entire Department of Housing and Urban Development, more than it spends on veterans benefits and education....
That's a lot of money.

And while I, like most people, imagined it was a sacred cow for the middle class, it turns out it's not: the greatest benefits go heavily to high-income households. Families with incomes under $100,000 top out at an average of $360 in savings per year, while higher bracket folks get a lot more -- $746 for families making $100 - 200K and $2,221 for families making over $200,000. (Especially when those second homes start being bought, I imagine.)

Bar graph showing at a glance how much more people over $200K get from the mortgage deduction than everyone else
The Atlantic story focuses on the geographic inequality in how the money is distributed. It's no big shock that the people with expensive houses in pricey markets like California, Washington, D.C., the New York metro area, and Boston get the most. But the thing that surprised me the most was that truly middle class families, making under $100,000 a year, get so little.

Seems like we should get rid of the mortgage deduction and come up with a new way to extend that bit of money to the people who need it, while not giving it to people who don't. Whether that's expanding the earned income credit or lowering the rates for the bottom percentiles, I don't know, but it doesn't seem like it would be that hard to make up $100 to $300 per family for those making under $100,000.

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