Vertical Equity and the Home Mortgage Interest Deduction

In the past we’ve often criticized the home mortgage interest deduction for being economically inefficient (see here, here, and here for example.)

Today we released a new “Fiscal Fact” criticising the deduction for being unfair as well—in the jargon of economists, it is “vertically inequitable.” Here’s the bottom line:

Despite recent attempts by real estate, home building, and mortgage-lending organizations to portray the home mortgage interest deduction as vital to middle-income family budgets, an analysis of data from the Internal Revenue Service tells a different story.

The most recent IRS data show few low- and middle-income taxpayers benefit from the home mortgage interest deduction. Those who filed tax returns with under $30,000 in adjusted gross income (AGI) in 2003 received just 9 percent of deductions for home mortgage interest, despite filing 52 percent of all tax returns. (The median taxpayer’s AGI was approximately $29,000 in 2003.) In contrast, 36 percent of home mortgage interest deductions were claimed by taxpayers with AGIs over $100,000.

Click here to read the full analysis.