Pros and cons of the mortgage interest deduction weighed

A proposal by House Ways and Means Committee Chairman Dave Camp, R-Mich., to revamp the mortgage interest deduction as part of a broader overhaul of the tax system may not go anywhere in an election year, but it has revived an old debate: Does the MID really promote homeownership, or is it a perk that mostly benefits the wealthiest homeowners?

John C. Weicher, director of the Center for Housing and Financial Markets at the Hudson Institute, lays out the case for the Wall Street Journal for keeping the MID as is. Bruce Katz, vice president and director of the Metropolitan Policy Program at the Brookings Institution, argues the case for reform.

Weicher says that taxpayers with adjusted gross incomes of less than $250,000 received about 88 percent of the $364 billion deducted nationally in 2011 — not exactly the “millionaires and billionaires” that President Barack Obama has called for raising taxes on.

Katz argues that the mortgage interest deduction is regressive — households making more than $200,000 a year save $1,784 a year on average, while those with incomes of $65,000 a year can expect to save less than $200.

But Weicher says the deduction matters the most to middle-class households earning $35,000 to $65,000, because  building up home equity is one of the best strategies available to them for building up a nest egg.

The mortgage interest deduction, he says, “helps families move into the middle class and live in comfort during their retirement years. It is about the only provision of the tax code that does.”

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Katz warns that we shouldn’t assume the mortgage interest deduction actually promotes homeownership. Households earning more than $160,000 a year, who receive 75 percent of the tax breaks, are already most likely to own a home. Other countries like Canada and Britain have achieved similar homeownership rates without the deduction.

America can “continue to subsidize bigger homes on bigger lots or make the kinds of smart investments in innovation, infrastructure and education that will lead to a more productive and inclusive national economy,” Katz says. Source: marketwatch.com.


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