Seriously, When’s the Last Time You Took the Mortgage Interest Deduction?
In the great saga of the fiscal cliff we’re all hanging from by our fingertips, no phrase may be more overused than “middle-class entitlements.” These are the entitlements Congress might vote to cap rather than raising taxes on the rich. When I first heard that Congress might really, actually tinker with the most bedrock of these “entitlements”—the mortgage interest deduction—my hackles rose. I wanted to shout at Republicans and Democrats alike: Hey, you meanies you! Why pick on us little guys?
But then I got to thinking: Have I ever actually taken the mortgage interest deduction? As I recall, I have, twice, in 25 years of home ownership. Those were two years in which my husband and I—well, actually, the kids—managed to rack up a whole lot of medical expenses (can you say “orthodontia”?), which, added to the home interest deduction, took us over what the regular old standard deduction for our family was.
So who exactly does take the mortgage interest deduction? This Washington Post article has some interesting info on that. As with so many other of the “entitlements” Republicans love to bemoan, it’s pretty much them that has, gets. Here’s the meat of the matter: “Current law allows homeowners to deduct the interest paid on mortgage balances up to $1 million, including on second homes, as well as on $100,000 worth of home-equity loans.” The deduction, the Post says, “overwhelmingly” favors the wealthy, because the rest of us don’t have enough deductions to itemize on our returns. In fact, USC tax expert Edward Kleinbard calls it “very much a subsidy for those who need it least.” Here are some numbers, courtesy of Anthony Randazzo of the Reason Foundation: In 1991, households making the median of $50,000 accounted for 48 percent of those taking the deduction. By 2009, that percentage had dropped to 30. Meantime, the percentage of six-figure households taking the deduction rose from 13.5 to 41.5 percent.
Even worse, the deduction encourages Americans to take out huge mortgages—to buy more house, in other words, than they can really afford. In an article earlier this year in the Atlantic, complete with easy-to-read graph, Matthew O’Brien noted, “We spend $100 billion every year—that’s the annual cost of the deduction—subsidizing bigger houses for the upper middle class.”
So who’s in favor of the deduction? Well, a guy I know who owns two homes says it will bankrupt him if Congress eliminates this particular loophole. Ahem. You know? He owns two homes. I don’t mean to be unfeeling or uncaring. But as I heard Lehigh University professor James Peterson argue to Marty Moss-Coane on Radio Times on Friday (much more eloquently than my summation does), you can’t really juxtapose cuts to, say, Medicare and Medicaid with eliminating the mortgage interest deduction, because when you get rid of the mortgage interest deduction, well-to-do people have a little less money. When you cut Medicare and Medicaid, people die.