What interesting arguments people will make in the midst of an economic crisis. While one commentator has a number of reasons why he is “never going to own a home again,” the Chicago Tribune argues that the United States needs to phase out the mortgage-interest deduction. The main reason seems to be that the deduction primarily benefits wealthier homeowners, not the middle class:
Trade groups such as the National Association of Home Builders portray the benefit as a middle-class tax break. But it does a lot less for most Americans than those with a vested interest in promoting home sales would have you believe: If you rent, you get nothing. If you have reasons not to itemize deductions, you get nothing. If you pay off your mortgage to live debt-free, you get nothing.
Borrow a fortune for a McMansion, however, and the Internal Revenue Service provides a big discount, at the expense of every other taxpayer. More than three-fourths of the benefit from the mortgage-interest deduction goes to the 14 percent of tax filers reporting six-figure incomes. Almost one-third of the subsidy goes to the population reporting incomes of $200,000 or more. Those 3 percent of tax filers at the very top receive about the same amount as do the 86 percent earning less than six figures.
As a consequence, this deduction does little to promote homeownership — supposedly its main objective. Data suggest that almost no one now benefiting from the break would flee the real-estate market. People just wouldn’t borrow as much to fund home purchases.
What is remarkable to me about both of these arguments is that such arguments might have been unheard of before this economic crisis. But since the economy has gone downhill, the housing market in particular (and the most recent housing figures are not good), desperate times apparently call for desperate measures.
All of this bears watching: will homeownership remain a cornerstone of the American Dream?