In the great saga of the fiscal cliff weâ€™re all hanging from by our fingertips, no phrase may be more overused than â€śmiddle-class entitlements.â€ť These are the entitlements Congress might vote to cap rather than raising taxes on the rich. When I first heard that Congress might really, actually tinker with the most bedrock of these â€śentitlementsâ€ťâ€”the mortgage interest deductionâ€”my hackles rose. I wanted to shout at Republicans and Democrats alike: Hey, you meanies you! Why pick on us little guys?
But then I got to thinking: Have I ever actually taken the mortgage interest deduction? As I recall, I have, twice, in 25 years of home ownership. Those were two years in which my husband and Iâ€”well, actually, the kidsâ€”managed to rack up a whole lot of medical expenses (can you say “orthodontia”?), which, added to the home interest deduction, took us over what the regular old standard deduction for our family was.
So who exactly does take the mortgage interest deduction? This Washington Post article has some interesting info on that. As with so many other of the â€śentitlementsâ€ť Republicans love to bemoan, itâ€™s pretty much them that has, gets. Hereâ€™s the meat of the matter: â€śCurrent law allows homeowners to deduct the interest paid on mortgage balances up to $1 million, including on second homes, as well as on $100,000 worth of home-equity loans.â€ť The deduction, the Post says, â€śoverwhelminglyâ€ť favors the wealthy, because the rest of us donâ€™t have enough deductions to itemize on our returns. In fact, USC tax expert Edward Kleinbard calls it â€śvery much a subsidy for those who need it least.â€ť Here are some numbers, courtesy of Anthony Randazzo of the Reason Foundation: In 1991, households making the median of $50,000 accounted for 48 percent of those taking the deduction. By 2009, that percentage had dropped to 30. Meantime, the percentage of six-figure households taking the deduction rose from 13.5 to 41.5 percent.
Even worse, the deduction encourages Americans to take out huge mortgagesâ€”to buy more house, in other words, than they can really afford. In an article earlier this year in the Atlantic, complete with easy-to-read graph, Matthew Oâ€™Brien noted, â€śWe spend $100 billion every yearâ€”that’s the annual cost of the deductionâ€”subsidizing bigger houses for the upper middle class.â€ť
So whoâ€™s in favor of the deduction? Well, a guy I know who owns two homes says it will bankrupt him if Congress eliminates this particular loophole. Ahem. You know? He owns two homes. I donâ€™t mean to be unfeeling or uncaring. But as I heard Lehigh University professor James Peterson argue to Marty Moss-Coane on Radio Times on Friday (much more eloquently than my summation does), you canâ€™t really juxtapose cuts to, say, Medicare and Medicaid with eliminating the mortgage interest deduction, because when you get rid of the mortgage interest deduction, well-to-do people have a little less money. When you cut Medicare and Medicaid, people die.