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Study: Time to Eliminate the Mortgage Interest Deduction
Removing homeowner subsidies would allow everyone’s income tax rates to be lowered
July 28, 2011 

The mortgage interest deduction does not increase homeownership rates and amounts to little more than a subsidy for wealthy homeowners, according to a new Reason Foundation study that recommends eliminating the deduction and streamlining the tax code. The Reason Foundation report suggests a revenue-neutral solution: eliminate the mortgage interest deduction and lower federal income tax rates for all Americans by 8 percent. 

“The mortgage interest deduction subsidizes and rewards wealthy people for buying expensive houses they would’ve purchased anyway,” said Anthony Randazzo, director of economic research at Reason Foundation and co-author of the report. “The deduction is used almost exclusively by people in the top income brackets with large mortgages. Renters, along with lower- and middle-class families, are getting a raw deal. Taxpayers and the economy would be best served by ditching the mortgage deduction and lowering overall tax rates.” 

The mortgage interest deduction was used on about a quarter of all tax returns filed in 2009. But the Reason Foundation report shows the home mortgage deduction was used on 73 percent of tax returns filed by those with incomes over $200,000 that year. The average tax savings for those homeowners: $2,221. In contrast, just 5.5 percent of tax returns filed by those making $20,000 to $30,000 used the mortgage interest deduction in 2009, with no significant tax savings. Thirteen percent of tax filers making between $30,000 and $40,000 used the mortgage deduction. Their tax savings was a paltry $96. And 23 percent of tax returns with incomes between $40,000 and $50,000 used the mortgage interest deduction, with an average tax savings of just $114. 

The study finds that the mortgage interest deduction has not increased homeownership rates and that eliminating it would not reduce homeownership figures or hurt housing prices. 

The full report is online here: Reason Foundation 

Reason Foundation is a nonprofit think tank dedicated to advancing free minds and free markets. Reason Foundation produces respected public policy research on a variety of issues and publishes the critically acclaimed Reason magazine and its website www.reason.com.  For more information please visit www.reason.org.



 
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