The Republican tax-reform plan, if adopted, would put on the chopping block some cherished tax deductions—perhaps none more so than the $80 billion mortgage-interest deduction (MID) on residences, which mostly benefits affluent homeowners. As the various bills under consideration propose, the deduction should be pruned or eliminated—not just because it is inequitable but also because it distorts the housing market.
Currently, a taxpayer can deduct interest on a mortgage up to $1.1 million—substantially more than the median U.S. home value ($203,000). Not surprisingly, the Government Accountability Office has found that higher-income households are generally more likely to use the mortgage-interest and property-tax deductions. In 2008, the most recent tax year for which data are available, taxpayers with adjusted gross incomes of $100,000 or more “accounted for 13 percent of all returns but claimed nearly half (47 percent) of all mortgage interest and property tax deductions.” The mortgage deduction is larger than the break for state and local tax deductions or for charitable deductions, and it's one of the largest tax breaks at a time when tax-code writers need to find “offsets” to reduce the burdensome corporate tax.