Home Ownership

The Simpson-Bowles plan propose a two options to reduce of eliminate the Mortgage Interest Deductions entirely!  The 2nd option would eliminate the Mortgage Interest Deduction  for Second Homes, Home Equity Mortgages and mortgages over $500,000 in value.   Would your decision to buy real estate change if the Mortgage Interest Deductions were eliminated?!  

We won’t be debating the politics of a subsidy on home ownership by the Federal Government specially since we are still subsidizing Oil companies.    But we will explore the potential impact of such a deduction on the housing market. 

According to The Tax Foundation shows that in 2003 only 9% of the folks with $30,000 adjusted gross income (AGI) took advantage of the Mortgage Interest Deductions while representing more than 50% of tax filers.   In contrast, 36% of the deductions went to filers with more than $100,000 in income.  Looking at data from 1998, Glaeser and Shapiro find that over 50% of itemized income goes to the top 10% of households.  

Clearly, this subsidy disproportionately benefits high income tax payers which would purchase the home regardless of deduct-ability of the interest payments.  

So, who is the subsidy really helping!?   Even if the impact of the subsidy might be a statistical anomaly, but just like any other Federal Government program that has been in place for a long time, unplugging the Mortgage Interest Deductions might have un-intended consequences that should be considered with care 
o cause externalize.   Therefore we advise strong caution before the Simpson-Bowles recommendations are adopted as the new law of the land.