Chart of the Day: Mortgage Interest Tax Subsidy Recipients

This chart is but a mere Tweet from a DC policy pro named Diane Yentel, about where the Mortgage Interest Tax Deduction (a huge federal subsidy intended to boost home ownership) ends up.

Here ’tis:

mortgage income tax deduction chart

She writes:

About a quarter of federal housing subsidies assist low income renters. The rest go mostly to wealthy homeowners.

There’s a lot of info on this out there if you Google it

12 thoughts on “Chart of the Day: Mortgage Interest Tax Subsidy Recipients

  1. Eric AnondsonEric Anondson

    It feels like this has become as much as anything in national politics today an untouchable policy, this wealth transfer will never slow, be reduced, or ended. I would love for legislation proposing this be phased out, maybe if it is phased over 15 years we could make it go away.

    1. Bill LindekeBill Lindeke Post author

      It comes up from time to time as a proposal. You’d only have to tweak it at first, make it phase out for higher-price homes or second homes?

      That said, the realty association lobby is huuuuuuuge and powerful, which I first learned while reading about urban development histories in books like this one:

  2. Shawn

    First, of course families with higher household incomes are more likely to buy houses and thus get more out of the deduction. That’s not terribly surprising.

    The deduction does phase out already. You can only deduct the interest on the first Million of debt used to purchase a home. We could reduce that, but finding a balance in purchasing power between communities would be tricky.

    Explanatory Scenario:
    250k buys a lot of house in a rural area and just a postage stamp in NYC, right? Housing/living expenses for an area affect wages, naturally. So a family in a high-priced market might have a high salary and high expenses — and a rural family might have lower priced market but lower wages… and their expendable income might be the same. In this scenario, the higher priced home owner would get pinched, seeing their expendable income get slashed in order to pay higher taxes because of where they live.

    1. Janne

      Shawn, what about limiting it to just first homes? Now, it covers multiple homes.

      (Note: Personally, I’m not excited about subsidizing any homeownership, given the flaky policy basis for encouraging it.)

    2. Monte Castleman

      Since you can’t set an fixed value due to the cost of houses in various areas, what about a cap say 300% of what would be considered affordable for a family of an average income in the area. This might have the side effect of encouraging developers and city zoning codes to return to smaller, more affordable houses.

  3. David MarkleDavid Markle

    A worthwhile posting, Bill, but not a surprise.

    Some years ago, along with Cal Bradford and Florence Golod, I went to a meeting of the State Board of Investment to speak against the special provision of low interest bonds to Winslow House, a luxury condominium high rise in the St. Anthony Main area. The developer, Louis Zelle (father of Charlie, the present Commissioner of Transportation) had political connections. We were pleased with the reaction of the board–State Auditor Arne Carlson quite vehemently denounced the bonding, and the distinguished chair (whose name escapes me) called the bonding “reprehensible”–but unfortunately all the board could do was fail to endorse, not stop the measure. At least the former Minneapolis Council Member, there to represent the developer, appeared to slink out of the meeting in a state of embarrassment.

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  5. Sam

    I fully agree that the deduction should be eliminated or capped for people making over a certain amount. However, I take major issue with the headline on the chart that “Mortage tax break mostly helps wealthy homeowners”. Sensational claims like that do nothing to help us make meaningful changes.

    Who it really truly helps, is the middle class. The credit I get on my small income is a bigger percentage of my income, than the credit a rich person gets. Yes, their number may be bigger, but it’s really not even noticeable for them. I also take issue that you’d consider a household making $100,000 “wealthy”. While not there yet, its definitely not out of the question for my wife and I to someday make $100,000 combined. Throw in a few kids, mortgage payments, taxes, etc, and it’s not like we’ve got tons of extra money laying around. I’m not claiming we’re living rough or anything, but to call $100,000 wealthy for a “household” is a definite stretch.

    1. Alex CecchiniAlex Cecchini

      “The credit I get on my small income is a bigger percentage of my income, than the credit a rich person gets.”

      This tells a different story. The second chart, titled “Percent Change in Income” clearly shows that mortgage interest + real estate tax deductions increase upper income percentile income much more than middle income ones.

      You can see interactive versions of the charts here Hover over data points to see the values.

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