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Letter: Abolish the mortgage interest tax deduction

Smith writes, "The mortgage interest deduction makes our tax system more regressive; it benefits the rich at the expense of the poor."

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When filing their federal income tax return, people who choose to itemize their deductions (as opposed to taking the standard deduction) have the option to write off mortgage interest, so people who pay more interest get a greater tax benefit. The intent of this deduction is to effectively subsidize home ownership. However, this is bad government policy and the mortgage interest tax deduction should be abolished. Here’s why:

  • It gives preferential treatment to some people at the expense of others. People who buy a home get a tax benefit; people who rent a home or apartment do not get any benefit.
  • It taxes the poor and gives to the rich. Only about 30% of tax filers itemize their deductions, these tend to be richer people. Poorer middle class home owners who take the standard deduction get no benefit.
  • States do not have equal housing markets. A small house in North Dakota may cost $200,000, while the same sized house in California would cost $2 million. Since people who pay more interest get a greater tax benefit, communities with cheap housing are subsidizing communities with expensive housing.
  • It decreases home ownership. The popular argument is that subsidizing interest will make it more affordable and increase home ownership. This has been debunked by economists. The benefit of any taxes is already reflected in the price of the property. Sellers know buyers want the tax benefit so they charge a higher price in response.
  • It increases the risk of default. By encouraging people to take more debt, it is more likely that this debt can get out of hand if people’s financial situation changes. Also, if the value of the property decreases below the value of the debt, it becomes feasible to abandon the debt and let the bank take the property back. This happened a lot during the 2008 financial crisis, and was its primary driving factor.

In conclusion, the mortgage interest deduction makes our tax system more regressive; it benefits the rich at the expense of the poor. Furthermore, it distorts both housing and financial markets. There is no justification for this deduction; it should be abolished.If we want a fair tax system that benefits everybody, increase the standard deduction instead.

William Smith lives in Fargo.

This letter does not necessarily reflect the opinion of The Forum's editorial board nor Forum ownership.

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