If you can afford a million-dollar mortgage, you don’t need a tax break.
BY David Sirota
December 14, 2012
With Congress finally starting to have a serious conversation about our revenue crisis, there are obvious reasons to limit the amount of mortgage interest that Americans can deduct from their taxable income.
First and foremost, current law—which allows homeowners to deduct interest on mortgages up to $1 million—is extremely expensive for the country. As federal data show, it costs roughly $100 billion a year, making it the third largest expenditure woven into the tax code.
That huge outlay might be justified if the deduction was a widely-distributed, middle-class program. But with only about a third of all taxpayers earning enough to make it worthwhile to itemize their tax returns, just a quarter of all tax filers ever actually utilize the deduction. Add to this the fact that the deduction can be used for second homes, and the result is a write-off that mostly benefits the wealthy. In dollar-figure terms, it is a deduction that, according to the Tax Policy Center, saves $5460 for someone making more than $250,000 a year and only $91 for those making less than $40,000 a year.
As compelling as these budgetary facts are, though, the single best argument for change comes from an obvious—but taboo—truth. Put simply, even in the name of the national goal of homeownership, the tax code does not need to subsidize $1 million mortgages, because nobody requires that large a mortgage to afford an adequate home.
The typical rejoinder to this truism is an argument citing disparities in real estate markets. The idea is that there are geographic variations in the price of decent housing, and that while a $1 million mortgage might buy a mansion in Omaha or Toledo, it supposedly doesn’t buy enough in places like Manhattan and La Jolla. Therefore, the logic goes, the tax code should be fully subsidizing such outsized mortgages to make sure those living in posh enclaves aren’t left out of the homeownership drive.