As the details of the controversial Republican tax reform legislation were up for heated debate over the last several months, the National Association of Realtors threw a lobbying punch in a political flyer, asking: “Do we want to be a nation of homeowners or a nation of renters?”

For NAR, the answer was obvious: a nation of homeowners. And for decades, the federal government has appeared to agree with that stance by subsidizing homeownership, in large part through the mortgage interest deduction (MID).

But the final version of the tax bill — which was just passed by the House and will head to the Senate for a vote next — indicates that may no longer be the case and exposes criticisms of the MID from across the political spectrum, the New York Times reported the day after the joint tax bill was released.

In the end Republicans sided or compromised with NAR on some key points of contention for real estate, but the bill still limits the MID to loans up to $750,000, or $250,000 less than the current tax code allows, for new mortgages. Existing mortgages will retain the current $1 million cap. The bill also limits the amount of state, local and property taxes individuals can deduct to $10,000.

“The Republican plan, in short, is tinkering with subsidies so entrenched in the social fabric that they have become entitlements in all but name,” the Times wrote.

The MID is one of the federal government’s largest tax subsidies, costing more than $70 billion a year, according to the Times.

Homeowner subsidies, particularly the MID, are unpopular among some economists and analysts because they distort the economy in multiple ways, according to the Times.

Critics say that because the deductions get bigger with more expensive homes, they favor higher-income homeowners, thereby fostering inequality. The subsidies also make homeownership artificially cheap, encouraging people to take on more debt than they might otherwise to buy bigger homes and second homes and inflating home prices for everyone.

The National Low Income Housing Coalition, an affordable housing advocacy group, has urged modification of the MID in the past to re-direct funds to tackling homelessness and housing poverty. But it joins other real estate groups in criticizing the tax bill, which the NLIHC says will benefit mostly the top 1 percent of income earners.

Email Andrea V. Brambila.

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