Who Benefits From the Mortgage Deduction?
While the mortgage deduction is highly popular with the middle class -- and thus seen as untouchable in most practical policy debates -- many analysts think it's a bad idea for a variety of reasons. In an original RealClearPolicy piece, former federal housing commissioner John C. Weicher pushes back against the conventional wisdom, arguing that the benefits of the deduction are widely dispersed throughout the population, and that the deduction helps families build savings:
Lower-income families receive more tax benefit -- and high-income taxpayers substantially less -- from the mortgage-interest deduction than from either the deduction for state and local income taxes or that for charitable contributions. Taxpayers with incomes above $200,000 (one frequent definition of "rich") receive more than half the benefit of those deductions; they receive less than 20 percent of the benefit from the mortgage interest deduction.
In 2007, the last year before the Great Recession, over 41 million families claimed the mortgage-interest deduction, more than the number claiming either the deduction for state and local taxes or the deduction for charitable contributions. More than 11 million of them were in the lower half of the income distribution -- again, more than the number claiming the other two deductions.
About three-quarters of homeowner families with a household head younger than 65 have a mortgage; almost 90 percent of them itemize. Among older families, only one-quarter have a mortgage, but of those who still do, almost 85 percent claim the deduction. By the time the head of the household is 30 years old, more than half of all American families own their own home and are able to benefit from the mortgage interest deduction, and they continue to benefit from it for most of the rest of their lives.
With tax breaks, the question is always how to cut the data. For example, in debates over the Bush tax cuts, liberals often pointed out that in dollar terms the biggest breaks went to the rich, while conservatives pointed out that poorer people shed a larger percentage of their total tax burdens (which of course were low in dollar terms to begin with).
One can do a similar thing with the mortgage deduction. Here, for example, is a graph by the Reason Foundation, indicating that the biggest breaks go to the well-off -- though we should bear in mind that most households won't stay in a single income category for the entire duration of a mortgage: