October 27, 2012
NY Times: Who Really Benefits From the Mortgage Interest Deduction
New York Times: Who Really Benefits From Interest Deductions:
Real estate and building industry groups have loudly condemned proposals by both presidential campaigns to shrink the mortgage interest deduction. Central to their arguments is the long-hallowed deduction’s value to the middle class. But a closer look at who benefits suggests that this perception, though prevalent, is not accurate.
To begin with, most taxpayers do not benefit from the deduction at all. This is because they do not itemize deductions on their federal income tax returns. According to Joseph Rosenberg, a research associate at the Urban-Brookings Tax Policy Center, only about 30% of taxpayers itemize, rather than take the standard deduction. And the majority of these itemizers are upper-middle and upper-income households.
Within that privileged category, the people who tend to derive the greatest dollar benefit from the mortgage interest deduction are households earning $100,000 to $500,000 a year. “About two-thirds of the total benefit go to that group in the 80th through the 99th income percentiles,” Mr. Rosenberg said. ...That the deduction has been politically sacrosanct for so long reflects just how much it is prized by the itemizers of the moment, as well as those who are in the business of selling homes.
(Hat Tip: Mike Talbert.)
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Typically sacrosanct personal deductions are those which involve well placed taxpayers who benefit from the deduction and other politically well positioned institutions in a symbiotic relationship. The mortgage interest deduction and the charitable deduction are excellent examples of this. The casualty deduction is an example of a situation that dies not involve such a situation. As a matter of fact, it is the opposite of t such a symbiotic relationship. Back in the old days when the deduction was available for any casualties to the extent they exceeded $100, individuals were encouraged to opt fir large deductibles on policies thus diminishing the premiums paid to insurance providers. As a consequence, insurers lobbied to have the deductible raised, thus ushering in the 10% added deductible.
Posted by: Bill Turnier | Oct 27, 2012 12:50:47 PM
Is it true or not, tax man, that a poor renter gains indirectly from the tax deduction of the rich landlord, who gets to write off not only mortgage interest, but depreciation, maintenance and repair, landscaping, etc, which are not available to the resident homeowner?
If so, the mortgage interest deduction should be broadened to level the playing field, so that the low-income resident homeowner is not disadvantaged vis-a-vis both the renter and the rich resident homeowner.
Posted by: Jimbino | Oct 27, 2012 1:44:56 PM
Jimbino: the resident homeowner will always be better off because the inputed income from living in the home rent-free is excluded from the tax base.
Posted by: Andrew | Oct 28, 2012 8:12:23 AM
The notion that a "poor renter" stands on the same ground, as a resident homeowner who carries a mortgage loan on his home, is facile. The owner/borrower has skin in the game (as so many have learned over the past 5 years), while the renter does not.
Posted by: Jake | Oct 28, 2012 6:54:28 PM
In other "news", NYT discovers water is wet.
Posted by: cas127 | Oct 29, 2012 2:07:44 PM
Jack: rIght, the best comparison is between the resident homeower and the combined welfare of the landlord/renter together. And, because the tenant can't deduct rent while the landlord has to include it, the owner/occupier fares better under the tax system.
Posted by: Andrew | Oct 29, 2012 3:57:11 PM