Why Everyone Loves the Mortgage Interest Deduction

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Over at FiveThirtyEight, Bryan McCabe takes on the mortgage interest deduction:

Commentators often talk about the mortgage interest deduction as a prized middle-class benefit that enables households to achieve the American dream of homeownership. But despite their strong support for the deduction, middle-class Americans are not the primary beneficiaries of this federal tax subsidy. Instead, wealthy Americans take home a disproportionate share of the deduction’s benefits.

….It’s not surprising that the wealthy benefit disproportionately from the mortgage interest deduction….What is surprising, however, is that Americans continue to support a housing subsidy that distributes benefits so disproportionately.

I think this is a lot less mysterious than McCabe makes it out to be. It’s true that high-income taxpayers get a bigger absolute benefit from the mortgage interest deduction than low-income taxpayers. Of course they do: they have bigger mortgages. But I’ve added a column to the JCT report that produced the numbers McCabe uses in his post. The extra column shows roughly how big the mortgage interest deduction is as a percentage of income at various levels:

As you can see, it comes to about 2% of income for everyone. (I used the midpoint of each income group for the calculation. The top income group is blank because “average” income is a little tricky to compute for this group.) What’s more, although homeownership rates are obviously higher at higher income levels, the homeownership rate is 60% even at incomes as low as $25,000.

So why is the mortgage interest deduction so popular? Because homeownership is pretty widespread even at low incomes and the amount of the deduction is about the same for everyone as a percentage of income. $283 may not seem like much, but to someone with an income of $10-20,000, it’s as valuable as $2,856 is to someone with an income of $100-200,000. Result: everyone loves the mortgage interest deduction.

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Today, reader support makes up about two-thirds of our budget, allows us to dig deep on stories that matter, and lets us keep our reporting free for everyone. If you value what you get from Mother Jones, please join us with a tax-deductible donation today so we can keep on doing the type of journalism 2020 demands.

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