More on Mortgage Interest Deductions

A favorite blog post of mine is one I wrote in response to the New Berlin & MSP fracas in which many people were moaning about how horrible subsidized housing is.  I pointed out that the biggest housing subsidy is the mortgage interest deduction.

I just wanted to make sure we're all on the same page here. Homeowners receive a total subsidy nearly three times larger than renters does, just from the mortgage interest deduction. Throw in the other tax preferences & we're talking' real money.

 

Later I pointed to a Kevin Drum blog on who benefits from this mortgage interest deduction.  the answer seemed to be higher-income groups who probably don't need it, rather than low-income homebuyers who presumably would need that incentive.

 

Via Kevin Drum, we have an answer to this question as he calculates that the benefit comes to about 2% of the income, no matter what the income level.

 

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.

 

The actual dollar disparity remains as the upper-income groups benefit disproportionately, but as a percentage, everyone's pretty much pleased.  Except for the renters, of course, who don't benefit.  This makes reform tricky as many people will have a financial stake in it, even the lower-income groups who might benefit more from the reform.  People often prefer to stick with a proven benefit rather than an unproven idea.