Home Mortgage Interest Deduction - Opinions About The Deduction

Opinions About The Deduction

The National Association of Realtors strongly opposes eliminating the mortgage interest deduction, claiming, "Housing is the engine that drives the economy, and to even mention reducing the tax benefits of homeownership could endanger property values. Home prices, particularly in high cost areas, could decline 15 percent if recommendations to convert the mortgage interest deduction to a tax credit are implemented." The Tax Foundation, a conservative think tank, claims that economists are basically united in their opposition to the deduction.

The Tax Foundation argues that few low- and middle-income taxpayers benefit, calling it subsidization of the real estate industry. Alan Mallach, a senior fellow at the Center for Community Progress and a visiting scholar at the Federal Reserve Bank of Philadelphia, argues that the deduction artificially inflates home prices and is in effect a government subsidy of the real estate industry. Critics in the United States also estimate that it contributes between $70 billion and $100 billion annually to the budget deficit.

Economist Edward L. Glaeser remarked in the New York Times that the policy "is public paternalism at its worst" and wrongfully "encourages people to leave urban areas" as well as to borrow as much as possible to bet on housing."

On March 9, 2012, PBS aired an episode of its show Need to Know in which a bipartisan panel discussed tax reform. The panel, which consisted of former Democratic politician Eliot Spitzer, tax law professor Dorothy A. Brown, Reagan domestic policy advisor Bruce Bartlett, and libertarian economist Daniel J. Mitchell, unanimously opposed the federal mortgage interest deduction.

The standard justification for the deduction is that it gives an incentive for home ownership. Countries that tax imputed income on home ownership may allow the deduction under the theory that it is no longer a personal loan, but a loan for income-producing purposes. Standard criticisms are that it does not significantly impact home ownership, that it allows taxpayers to circumvent the general rule that interest on personal loans is not deductible, and that the deduction disproportionately favors high-income earners.

A second justification applies to countries which tax imputed income on home ownership, such as Sweden, the Netherlands, and Switzerland: since home ownership generates imputed income under such a system, the interest on the home loan is no longer a personal expense, but an expense necessary to "earn" the imputed income and therefore should be tax deductible. In fact, Sweden, the Netherlands, and Switzerland allow a home mortgage interest deduction.