Proposals that Matter: Home Mortgage Interest Deductions


Andrew Schillaci

Editor’s Note: This article has been modified to clarify source attribution.

Last Thursday, Republican lawmakers revealed their proposal for a new tax code, and one of the biggest takeaways was the proposed change to the popular home mortgage interest deduction, or HMID.

The HMID, which is as old as the federal income tax, allows home-buyers to deduct mortgage interest from their taxes. While existing homeowners can keep the current deduction, future purchases will be capped at a $500,000 loan value, down from the current $1 million limit. College students should care because policies like the HMID have increased the wealth gap, with home ownership being a critical component of income inequality.

In May, The New York Times ran a story titled “How Homeownership Became the Engine of American Inequality,” in which they acknowledge that the mortgage interest deduction props up home prices and overwhelmingly benefits the wealthy and upper middle class. The article points out that the mortgage-interest deduction has become “politically untouchable,” but Republicans are rightfully trying to challenge this notion.

Democrats from high-tax states like New York and New Jersey say the bill would need to change to gain their support, while powerful trade groups representing the real estate industry and small businesses are outraged by changes to the HMID. In reality, the HMID seems like the most sensible piece of the entire bill.

“The bill is like a dead fish,” Democratic Senator Chuck Schumer said. “The more it’s in sunlight, the more it stinks, and that’s what’s going to happen.”

Similarly, Jerry Howard, chief executive of the National Association of Home Builders, said his group would fight the bill “tooth and nail,” claiming it could lead to a decline in home prices and a housing recession. “This now is a direct assault on the American dream of homeownership,” he said.

Schumer and Howard are fighting the bill because the HMID gives incentives for people to buy higher-priced real estate, which is not favorable for their constituents and associations. Passing this new proposed bill will drop real estate prices, cutting into home builders’ profits as well as campaign donations. In other words, nobody seems to have the middle-class worker as their No.1 priority.

More sensible opponents point out that the HMID offers advantageous benefits to the upper middle class and wealthy.

Richard Burke, a doctoral student in the Woodrow Wilson School of Politics at the University of Virginia, told me in an interview that the HMID was “not started with the intention to expand homeownership,” but rather, it was included as part of the passage of the first income tax.

As Burke points out, the idea that homeownership rates will decrease because of a scale back on minor tax incentives is not correct. A preliminary estimate prepared by the National Association of Realtors says that prices may fall 10 percent on average nationwide, increasing demand for homes. This will result in more homes built at a price the middle class can afford.

In addition to more affordable houses, the new standard deduction will help drive demand up for homes while simplifying the tax code at the same time. Americans filing their taxes will either subtract a fixed amount from their incomes, called the standard deduction, or itemize write-offs, including mortgage interest. The standard allowance will rise from $12,700 to $24,000, for a married couple filing jointly and only allow deduction for home loans and charitable donations.

As a result, itemizing will become less popular. The average American will once again have more money to purchase a home.

With inflated prices in the current real estate market, homeownership is increasingly out of reach — something that will change if the HMID proposal is approved. Housing equity provides a primary source of wealth for people financially capable of buying a home, widening the economic gap between owners and renters.

If the new change to the HMID is applied, the gap will shrink. In addition, recovered government revenues could be used to maintain or create policies that more effectively enhance the social welfare of low- and moderate-income citizens.

It is in the government’s best interest to create more revenue, and one of the ways they can is by improving homeownership laws. The new HMID policy will reduce real estate prices while increasing homeownership rates and government revenues.

The big winners of the change in the HMID and standard deduction are middle-class people who generally don’t understand itemizations as well as middle-class families looking to purchase more affordable houses.

Andrew Schillaci, ’17, ’18G, is a columnist for The Brown and White. He can be reached at [email protected].

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  1. The current house bill includes some provisions that are extremely detrimental to higher education. It eliminates the deduction for interest paid on home equity loans – a common source of financing for college expenses for middle class families. Another item eliminated in the bill is the income exclusion for the tuition benefit provided to employees of colleges and universities. That benefit is huge, especially for employees at lower income levels. Those employees could end up with a tax bill that exceeds their income, essentially making that benefit unusable by those families. The tuition benefit is an incentive for employees to work at colleges and universities for lower salaries. These two provisions will reduce access to higher education for some and further increase the costs to everyone.

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