It was a battle between economists and legislators. The mortgage interest tax deduction was deconstructed and dismantled during a meeting of the Joint Committee on Taxation of the U.S. Congress. This $100 billion annual deduction has come under heavy scrutiny due to the budget deficit and the ongoing sequestration.
Although the mortgage interest tax deduction is estimated to be claimed by 40 million American taxpayers, most economic experts who recently gave testimony before the committee explained that the deduction was inefficient and wasteful. Many legislators, however, shunned the expert testimony and argued on behalf of keeping the deduction on the U.S. Tax Code.
The Voice of Experience
The arguments presented for and against the mortgage interest tax deduction were sharp and accompanied by supportive examples. According to news agency Reuters, when an economist from the Cato Institute argued that the deduction essentially acts as a subsidy for debt, a Republican Member of Congress from Ohio leaned on his background as a real estate agent to respond.
Pat Tiberi (R – Ohio) explained that in all his time as a real estate agent he never ran into a client who wished to buy a home solely on the merits of the mortgage interest tax deduction. A Democratic Representative from Georgia argued that while the majority of mortgage interest tax deductions benefit upper class homeowners, there are enough middle and working class borrowers to justify keeping the deduction alive.
Second Homes Under Fire
An economist from the National Association of Home Builders (NAHB) argued in favor of keeping the deduction for second homes and up to $100,00 in equity lines of credit. The NAHB economist warned against thinking that not every second home in the United States is a beachfront mansion. To bolster his argument, the NAHB quoted recent analysis that estimated the average borrower of a mortgage on a second home earns slightly more than $70,000 per year.
A report commissioned by the White House in late 2010 included a proposal to limit the mortgage interest deduction parameters to $500,000. That same report also recommended the end of the mortgage interest deduction for equity lines of credit as well as second homes. These recommendations have not been given too much consideration by the White House.