I recently attended a lecture given by Arnold Kling, who is a former Federal Reserve economist on the Board of Governors staff, former senior economist at Freddie Mac, and all-around financial and monetary expert. The...
- The Tax Policy Blog
- The Battle of the Mortgage Interest Deduction
The Battle of the Home Mortgage Interest Deduction
At the recent meeting of the President’s Advisory Panel on Tax Reform, members discussed the merits of capping the mortgage interest deduction. According to a story in USA Today, some special interest groups are gearing up for a fight to protect the coveted deduction.
"When this report is issued and the debate then begins ... the National Association of Home Builders is going to do its damnedest to protect the preferred treatment of housing in the tax code," says Jerry Howard, NAHB executive vice president. [Full Story]
While the mortgage interest deduction is a popular political tool, simple economics shows us why it may be time to say goodbye to the deduction in current form. As numerous economists have pointed out, the current incentive structure makes housing virtually a tax free investment. The resulting over-consumption of housing is estimated to equal 35% of net private investment since 1980. The relationship between the mortgage interest deduction and increased homeownership is not as clear as some would believe and the benefits of the deduction mostly accrue to the wealthy. Moreover, the mortgage interest deduction is one of the largest tax expenditures in the federal budget.
You can be sure that rent-seeking groups will engage in a plethora of lobbying efforts to protect their special interests. However, lawmakers should remember the public interest when deciding the future of the mortgage interest deduction.
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.