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Don't you dare touch our mortgage interest deduction, readers say

February 08, 2013|By Doyle McManus
  • Those in the real estate business fear that doing away with the mortgage interest deduction would negatively impact their industry.
Those in the real estate business fear that doing away with the mortgage… (Nam Y. Huh / Associated Press )

In my Wednesday column, I argued that the federal tax deduction for home mortgage interest should be trimmed -- because instead of helping first-time homeowners, a worthy public policy goal, it mostly subsidizes big mortgages.

I wasn’t surprised to learn that a lot of readers disagreed. Angry emails flooded in. Many of the objections were well reasoned, although one reader just called me a Marxist. He must not have noticed that Mitt Romney, who’s not a Marxist, also proposed capping the mortgage deduction -- actually, all itemized deductions -- during his presidential campaign.

Paul Lopez of the National Assn. of Home Builders wrote to question my estimate that the mortgage interest deduction costs the Treasury about $100 billion a year. He noted, correctly, that Congress’ Joint Committee on Taxation recently issued a new estimate of the deduction’s net cost as only $68 billion. My $100 billion number came from the White House Office of Management and Budget, which uses a different methodology. I’ll give that point to Lopez, but I don’t think the smaller number affects my main point: The deduction isn’t well designed.

Lopez noted that the mortgage interest deduction is used by 34 million taxpayers, representing about 90 million people. He’s right, but that’s still fewer than 1 in 4 taxpayers.

The mortgage interest deduction, one reader wrote, “is the only real tax break the middle class gets.” It often feels that way. But, as I wrote, the tax benefit from the deduction goes mostly to upper-income taxpayers with big mortgages, not the middle class. At the top -- over $200,000 in income -- more than 75% of households use the deduction; in the middle, between $50,000 and $100,000, fewer than one-third do. The deduction could be capped (the Romney proposal) or limited to 28% (President Obama's proposal) without hurting the real middle class at all.

I learned one good lesson from all those emails, though: The mortgage interest deduction is so beloved that it won’t be easy for Congress to change.

One reader, for example, wrote that she’s a single woman with an income of about $30,000 a year and a mortgage balance below $100,000. Nobody’s seriously proposing taking her tax deduction away, but she’s alarmed that anyone’s even talking about a cap.

So I still think I’m right. But I don’t expect to see Congress take my advice anytime soon.

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