No, most people don’t realize that the home mortgage deduction is a subsidy to the rich. But that’s what it is:
Since the Great Depression, US housing policies have aimed almost exclusively at encouraging Americans to become homeowners. Housing policies favor and heavily subsidize homeownership because it is said to help create strong communities and build family wealth. But it would be a mistake to continue with this approach now.
Homeowners receive tax benefits for their housing expenses, mostly because of the enormously expensive mortgage interest deductions, which disproportionately benefits higher-income taxpayers. But no such support is offered to lower-income renters.
The linked author proposes rent subsidies. My preference would be ending the home mortgage deduction or, failing that, capping the home mortgage interest deduction at, say, $50,000 per year. Do I really need to explain how anybody paying more than $50,000 in home mortgage interest is probably not in the lower three income quintiles?
I would either eliminate it or make the exemption much lower, say $10,000. Most tax expenditures should go away or have low limits. Health insurance and charitable contributions should definitely be included.
Steve
It’s a subsidy to everyone paying mortgage interest or rent. Middle and lower class homeowners get the deduction, not just the rich, and the landlords must account for it in setting rental rates on their financed properties, so renters get it too.
That said, it’s a “subsidy” and a needless distortion. But no one should fool themselves, eventually the tax rates will be normalized to effective tax rates with and without deduction. No one used to pay 70-90% marginal effective rates here back in the 50s or 60s. Not when deductions were accounted for. In that vein, I see no reason to cap deductions. You are still jacking around with the code, and the best lobbyists will jack right back for the benefit of the connected. Just eliminate them from our Rube Goldberg tax code.
I’m cool with a cap, though some will point out that it is likely to have a disproportionate effect on those who live in expensive parts of the country.
There’s already a cap of sorts with Alt Min, but it’s a small percentage off the top instead of a cap on the absolute total. I would think that anyone paying $50K in mortgage interest a year must have an income big enough to be affected by AMT.
I agree the deduction should be eliminated or curtailed, but there is a soft cap on it. “Only” $1 million dollars worth of mortgage debt is eligible, so at 5% interest that would be a $50k deduction. It can be reduced further for high income earners, but it’s a complicated calculation (surprise, surprise!).