Reforming the Mortgage Interest Deduction

Mercatus Working Paper No. 14-17

30 Pages Posted: 22 Jun 2014

Date Written: June 1, 2014

Abstract

The $69 billion mortgage interest deduction (MID) is often viewed as an element of the tax code that promotes middle-class prosperity. However, 64 percent of the benefits, as measured by effective tax reduction, goes to households earning more than $100,000 per year. The large variation in nominal benefits is one of the reasons why many economists state that the MID is regressive. High-income earners average a tax benefit nearly nine times greater than a tax filer earning $50,000-$100,000. The effective tax reduction of the MID per return among tax filers earning between $100,000 and $200,000 is $1,420. That is still nearly 10 times larger than the $150 saved by taxpayers earning between $30,000 and $50,000. With 65.2 percent of all tax filers claiming to make less than $50,000, only 9.8 percent of these returns used the mortgage interest deduction. In order to create a simpler, more efficient tax code, policymakers should take care to effectively align tax policy with housing objectives.

Keywords: mortgage interest deduction, MID, homeownership tax credit, tax reform

JEL Classification: E62, H23, H71

Suggested Citation

Fichtner, Jason J. and Feldman, Jacob M., Reforming the Mortgage Interest Deduction (June 1, 2014). Mercatus Working Paper No. 14-17. Available at SSRN: https://ssrn.com/abstract=2457227 or http://dx.doi.org/10.2139/ssrn.2457227

Jason J. Fichtner

Johns Hopkins University - SAIS ( email )

1717 Massachusetts Avenue NW
Washington DC, DC 20036
United States

HOME PAGE: http://https://sites.google.com/site/jasonjfichtner/

Jacob M. Feldman (Contact Author)

Independent

No Address Available

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