Ending the mortgage interest deduction is senseless

Nov 30 2012 - 2:45pm

The mortgage interest deduction (MID) has been a cornerstone of the American tax code and American housing policy for almost 100 years. Instituted in 1913, it allows homeowners to deduct the amount of interest they pay on home loans up to $1 million and up to $100,000 of home equity loan debt. These limits have not been changed since 1987.

The MID is one of the biggest incentives young families and individuals have for making the biggest investment of their lives. At current limits, a homeowner earning $80,000 in gross income in 2009 with a $200,000 mortgage will save an average of $8,600 in mortgage interest and real estate taxes in the first five years they own their home.

With America more than $16 trillion in debt and Congress under intense pressure to cut the debt before the end of 2012, there's talk of scaling back, or even eliminating, the MID in an effort to avoid the "fiscal cliff" that will trigger a second recession.

This is a terrible idea on so many levels.

1) Eliminating or cutting the MID will harm local government's ability to provide basic services to citizens.

A study by the non-partisan Tax Policy Center found that limiting the MID to a maximum 28 percent rate would cause metropolitan home prices to decline by more than 10 percent from their current 2002 levels.

The decline would lower property tax values and decrease property tax revenues collected by local governments. The lack of revenue could force further cuts in essential services like fire and police, trash pickup, funding for schools and road maintenance.

2) Eliminating or cutting the MID hurts the middle class more than anyone.

According to the Congressional Joint Committee on Taxation, fully two-thirds of the tax benefit from the MID goes to those who earn less than $200,000 per year. The IRS says the MID makes up 1.76 percent of their adjusted gross income.

Households in the Ogden-Clearfield MSA, representing Davis, Morgan and Weber counties, earning the area's median $71,500 income would lose more than $1,100 a year without the MID on top of the projected $3,500 tax increase the average American will pay in 2013.

3) Eliminating or cutting the MID will harm young singles and couples, who tend to be more recent homebuyers.

The median home price in the Ogden-Clearfield MSA today is $153,000, which is encouraging more younger buyers who can afford lower-priced homes to try to buy. IRS data shows the largest interest deduction amounts are for those aged 35-45. As a share of household income, the largest deduction amounts are for those aged 18-35.

As prices climb during the housing recovery, the MID will become an even more important tool to encourage Utah's young people to strive to achieve The American Dream of homeownership.

4) Eliminating or cutting the MID would raise relatively little revenue.

According to the Joint Committee on Taxation, homeowners took $78 billion in credits through the MID in 2011. The federal government spends almost $9 billion a day. The average Northern Wasatch homeowner would lose more than $1,100 a year to provide less than nine days of government spending.

5) Eliminating or cutting the MID goes strongly against the stated wishes of the American people.

A bipartisan survey of 1,500 likely voters done in May 2011 about homeownership and the MID showed the following:

* 74 percent of those polled believe owning a home is the best long-term investment they can make.

* 73 percent of renters said they would like to purchase a home.

* 73 percent believe it is solid policy to support housing through the tax code.

* 71 percent oppose eliminating the MID, and 63 percent oppose scaling it back -- among the political parties, 69 percent of Republicans, 64 percent of independents and 57 percent of Democrats opposed eliminating it or scaling it back.

Almost three in four people want the MID left alone. So why is Congress even considering rejecting the wishes of a large majority of the American people?

Ending or scaling back the mortgage interest deduction is a bad, bad idea. It will cause a huge tax increase for homeowners. It will do more damage to the middle class than to any other socioeconomic group. It will generate little revenue by government standards.

It will discourage many young Utah couples from starting their families as they should, in a home. It will lower Utahns' quality of life.

It just makes no sense.

C. Warren Wakeland is the chief executive officer for the Northern Wasatch Home Builders Association.


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