The Mortgage Interest Deduction (MID) Should Be Left Alone

A proposed bill was set in motion to eliminate the Mortgage Interest Deduction for homeowners, as a way of reducing the federal deficit by the bipartisan Deficit Reduction Commission (DRC) on November 30th.

The National Association of Realtors(R) quickly released a statement, here is part of it:

“The tax deductibility of interest paid on mortgages is a powerful incentive for home ownership and has been one of the simplest provisions in the federal tax code for more than 80 years. In a new survey commissioned by NAR and conducted online in October 2010 by Harris Interactive of nearly 3,000 homeowners and renters, nearly three-fourths of homeowners and two-thirds of renters said the mortgage interest deduction was extremely or very important to them.”

Here are my rambling thoughts on the subject:

1. It’s a sure fire way to backfire. In a slumping economy, home sales and consumer confidence is KEY to getting things back on the right path. Take away the #1 motivation for buying/owning a home….and you’ll take away a huge portion of sales and slow the economic growth.

2. Fewer home sales, fewer home owners….leads to fewer real estate taxes. The FY 2011 Proposed Budget says real estate taxes account for 53% of revenue. I can only speak to Northern Virginia, but our real estate taxes pay the salaries of our teachers, police, fire departments, community centers, etc. The list is endless (and probably impossible to get a full breakdown of where your taxes go), but the bottom line is this: fewer taxes leads to fewer revenue, reduces spending levels leads to fewer jobs. As go jobs…so goes the economy.

3. Increased costs to landlords will increase costs to renters. Increasing housing costs means decreased consumer spending. Again, slowing the economic growth they are searching for.

It’s a bad, no good, rotten idea. Leave the MID alone!

Verdict: Looks like on December 3rd, the committee agreed. The final report received 11 of the 18 commission members’ votes. Fourteen votes were required to send the recommendations to Congress.