Mortgage Interest Deduction Could Be a Casualty of Nebulous Budget Plan
According to an Associated Press report, a new bipartisan budget plan (proposed by the so-called Gang of Six) would slash or reduce a number of tax breaks, including the mortgage interest deduction.
The proposal would supposedly reduce the deficit by as much as $4 trillion over the next ten years, although the AP article says that it punts on many of the most difficult issues, leaving it to congressional committees to fill in the details later. This seems like par for the course to me. The plan would reduce the number of tax brackets by half, and would cut the top tax bracket from 35 percent to between 23 and 29 percent. In order to pay for tax cuts, the plan would reduce or eliminate tax breaks for health insurance, mortgage interest, and charitable donations. Within the plan there are no specifics as to how the tax breaks would be reduced.
Weve discussed the mortgage interest deduction many times on this blog. A budget plan proposed by the Obama Administration back in February would have reduced the deduction for those making over $250,000 as a household or $200,000 as an individual. Again, the plan proposed by the Gang of Six has no specifics, so we do not know how it would impact homeowners.
It seems well worth mentioning that recent studies showed that the benefits of the mortgage interest deduction inure disproportionately to those who earn the most money. Felix Salmon wrote an article last week that showed that housholds earning more than $200k account for 10% of all income tax returns, yet receive 30% of the benefits of the deduction.
Nate Silver, of the excellent FiveThirtyEight blog at the New York Times on the broad support for the mortgage interest deduction, despite the fact that the middle class is not the main beneficiary of the deduction (a Gallup Poll showed 90% of Americans support the deduction). Data from the Congressional Joint Committee on Taxation showed that in 2009 75% of Americans making more than $100k claimed the deduction. Only 25% of those earning between $40-50k claimed it.
Silver comments:
Its not surprising that the wealthy benefit disproportionately from the mortgage interest deduction. High-income Americans are more likely than middle-class or low-income Americans to be homeowners, and the deduction rewards homeowners who take out larger mortgages to buy bigger homes. What is surprising*, however, is that Americans continue to support a housing subsidy that distributes benefits so disproportionately.
*Im not especially surprised by this because I believe that a good chunk of the American populace is more or less innumerate, but this is neither here nor there.
So what does the future hold for the mortgage interest deduction? Its hard to say, because this plan doesnt specify. Given the broad support for the deduction, it would seem unlikely that many politicians would tinker with it, although this particular iteration of Congress has shown a strong disconnection from reality and a propensity toward discredited ideas, so who knows what they will do.
The mortgage interest deduction cost more than $80 billion in 2009.
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