Tuesday, November 13, 2012

9 Reasons to Eliminate the Home Mortgage Interest Tax Deduction

In our continuing series about the possibility that the home mortgage interest deduction will be modified, radically altered, or even eliminated by Congress and President Obama in an attempt to raise more tax revenue, we take a brief look at the top 9 reasons why the tax deduction should go.  
  1. Government should not be subsidizing borrowing.  Home mortgage interest tax deduction is not an incentive to buy a home, but an incentive to borrow money.  Why help the banks?
  2. Current approach artificially increases the value of homes to the detriment of new buyers
  3. Government loses potential tax revenues
  4. The wealthy benefit most, making this deduction regressive
  5. Eliminating this and other deductions simplify the tax code
  6. Current system is unfair to renters
  7. Benefit to homeowners is small, often nonexistent 
  8. Government should not be incentivizing home ownership over renting
  9. Better for middle class to have lower rate or higher standard deduction
These same reasons could also be used to support the choice of modifying the existing tax benefit.  Some in congress are suggesting caps on the total deduction, limiting the deduction for those who are in the top income tax brackets, or phasing out the deduction over several years.  

In most cases the plans being put forth to eliminate or modify the mortgage interest deduction would be offset by increases in the standard deduction or decreases in the underlying tax brackets.  Some would reduce each bracket by 10% and eliminate most loopholes.  

What do you think?  We've laid out the 10 benefits of the mortgage interest deduction to taxpaying homeowners, and 7 Social Benefits of Home Ownership and 6 Social Benefits of Renting, and now 9 reasons to eliminate the deduction.  Have we missed anything?  

Next we will look at whether or not there is actually a significant benefit to a significant number of taxpayers, or whether the elimination of the mortgage interest deduction might actually be a wash to those who currently use it.

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