In my Wednesday column, I argued that the federal tax deduction for home mortgage interest should be trimmed -- because instead of helping first-time homeowners, a worthy public policy goal, it mostly subsidizes big mortgages.
I wasn’t surprised to learn that a lot of readers disagreed. Angry emails flooded in. Many of the objections were well reasoned, although one reader just called me a Marxist. He must not have noticed that Mitt Romney, who’s not a Marxist, also proposed capping the mortgage deduction -- actually, all itemized deductions -- during his presidential campaign.
Paul Lopez of the National Assn. of Home Builders wrote to question my estimate that the mortgage interest deduction costs the Treasury about $100 billion a year. He noted, correctly, that Congress’ Joint Committee on Taxation recently issued a new estimate of the deduction’s net cost as only $68 billion. My $100 billion number came from the White House Office of Management and Budget, which uses a different methodology. I’ll give that point to Lopez, but I don’t think the smaller number affects my main point: The deduction isn’t well designed.
Lopez noted that the mortgage interest deduction is used by 34 million taxpayers, representing about 90 million people. He’s right, but that’s still fewer than 1 in 4 taxpayers.
The mortgage interest deduction, one reader wrote, “is the only real tax break the middle class gets.” It often feels that way. But, as I wrote, the tax benefit from the deduction goes mostly to upper-income taxpayers with big mortgages, not the middle class. At the top -- over $200,000 in income -- more than 75% of households use the deduction; in the middle, between $50,000 and $100,000, fewer than one-third do. The deduction could be capped (the Romney proposal) or limited to 28% (President Obama's proposal) without hurting the real middle class at all.
I learned one good lesson from all those emails, though: The mortgage interest deduction is so beloved that it won’t be easy for Congress to change.
One reader, for example, wrote that she’s a single woman with an income of about $30,000 a year and a mortgage balance below $100,000. Nobody’s seriously proposing taking her tax deduction away, but she’s alarmed that anyone’s even talking about a cap.
So I still think I’m right. But I don’t expect to see Congress take my advice anytime soon.