The mortgage interest deduction, a tax break introduced in 1913, has come under fire from politicians on the right and the left. Most recently, it was from GOP presidential nominee Mitt Romney.
It’s possible that this topic will be at least be a partial factor in the coming election season. In preparation, Movoto thought it was a good time for a primer on the subject.
Argument Against Deduction
Mark Robyn, an economist for The Tax Foundation, a not-for-profit based in the nation’s capital, argued that many Americans don’t realize the deduction isn’t necessarily a boon for the whole of America.
“The pro argument is that it encourages homeownership,” Robyn said. “There is a lot of rhetoric thrown around about the American dream, and that type of thing, but I don’t find those arguments convincing.”
Data from the Congressional Research Service indicated that in 2009 most of the tax break went to people who earned more than $100,000 annually, or about 70 percent of those who claimed the deduction.
In other words, this is a tax break that only benefits the wealthiest Americans.
Robyn noted one of the requirements to receive the incentive is to itemize your taxes. Typically, a person only itemizes their taxes, opposed to filing a standard tax form, if they believe they have enough deductions to warrant the time.
“In order to have enough deductions to itemize you are generally a higher-income person,” he said. “Lower-income people might not have enough to itemize.”
Argument for Deduction
Like most things, there are two sides to the issue. In a 2010 survey of 3,000 homeowners and renters, commissioned by the National Association of Realtors and conducted by Harris Interactive, about three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them.
And according to polling data released by National Association of Home Builders earlier this year, three out of four voters believe it’s reasonable for the federal government to provide tax incentives to encourage homeownership.
Another survey buoyed the NAHB’s findings. A New York Times/CBS News Poll conducted last year showed that 89 percent of those surveyed believed homeownership was an important part of the American dream and more than 90 percent indicated it was important for the federal government to continue the mortgage interest deduction.
Editors’ note: This is the second part of a two part series. The first part can be found here.
Who is Movoto Real Estate, you might ask? Movoto is an online real estate brokerage based in San Mateo, CA. Our blog has been recognized for its unique approach to city-based research by major news organizations around the world such as Forbes and CBS News.