Debating the Mortgage Interest Deduction
Tax breaks can be seen as the silver lining that accompanies the yearly and sometime quarterly obligation of paying taxes. For homeowners, that lining may start to wear thin if government officials decide to no longer offer the mortgage interest deduction (MID) that allows home owners to deduct the amount of interest that they pay each year on their mortgages from their taxable income.
Those who are for doing away with the deduction claim that only a small percentage of home owners take advantage of the it, most of which are higher income households, and that no longer offering the MID will help balance the budget deficit.
However, the Tax Foundation found that striking the MID would cause the economy to decrease by $254 billion and result in 659,000 lost jobs because homeowners would ultimately have less money to spend. Economists also state that housing has accounted for approximately 17-19 percent of the gross domestic product, and taking away the MID would decrease the viability of the housing industry.
In April of this year, the Hudson Institute dispelled the myth that only households with high incomes claim the MID after studying tax returns filed in 2007 and finding that more than half of the households that claimed the deduction had an average household income of $75,000-$200,000 in income.
The Institute also reported that 22 percent of MID claims were made by households with $50,000-$75,000 in income and that the top five percent of tax payers account for less than 20 percent of deduction claims.
So what could this mean?
The argument that this credit is only leveraged by the super-rich is misleading as it is clear that a substantial number of middle class households itemize the deduction and take advantage of the savings. As more Americans begin to regain their footing and more regularly pay down their debts that they may have been neglecting in recent years, a repeal of the MID would work against that confidence and result in a tighter tying of the purse strings.
After striking the payroll tax deduction earlier this year, taking away additional deductions could sour tax payer outlooks and decrease whatever confidence they have in benefiting from an improved economy.