An editorial in today’s USA Today argues against the mortgage interest deduction, so in the interest of including an opposing view (VAR and NAR vehemently support the MID), here’s the gist:
Arguably the most potent symbol of a broken code is the deduction for interest on home mortgages of up to $1 million. Ostensibly for the cause of promoting homeownership, its principal effect has been to drive up home prices. People may get a tax break, but they have to take out bigger loans, creating a wash. Meanwhile, millionaires are subsidized by taxpayers of far lesser means.
The deduction costs roughly $100 billion a year. And yet, whenever someone proposes even a modest reduction — as a presidential commission did in 2005 — the real estate, home-building and mortgage lending lobbies treat it as an assault on the American way of life.
The opposing view, (USA Today always prints one) comes from NAR president Moe Veissi:
Some say there’s no evidence the mortgage interest deduction (MID) has an effect on homeownership rates; to those people I say, “Just look around you.”
For example, the MID has a huge impact for a hardworking family in Topeka who just saved several thousand dollars on their taxes — money they can use to save for their children’s education or to pay down other debts.
Or consider the young couple in California trying to gain a financial foothold as they buy their first home — the deduction certainly makes a big difference for younger Americans who aspire to own a home so they can begin building a financial future.
We don’t believe USA Today’s assertion that the MID causes home prices to rise. Would a seller really think, “Hey, a buyer’s gonna get a tax break. I’ll raise my price!”? No. A seller would think, “I need to price this house to sell.”
As for the cost: There are a lot of tax deductions out there; we use them to (as Veissi puts it) encourage “behaviors and actions that we, as Americans, believe are good for individuals, communities and the nation.”
So we offer tax breaks for retirement accounts, to help with the cost of healthcare and raising children, and — because we believe that it’s good for our communities and our way of life — for homeownership.
Now USA Today may not agree that homeownership is a worthy goal. That’s a valid position (although certainly not ours). But Americans as a whole do think it is, which is why the MID was made part of the tax code. The law reflects our values, and those values include the opportunity to own a home.