Calls to reform to the mortgage interest deduction (MID) have appeared in two major news outlets in recent weeks. In an editorial titled “Houses of Lobbyists” on May 6, The Wall Street Journal (WSJ) editorial board responded to President Trump’s proposed outline for tax reform by urging the administration and Congress to reduce the amount of a mortgage eligible for the MID from $1 million to $250,000 to “make the tax benefit less tilted to the affluent, and [to] also provide more revenue for lower tax rates.” On May 9, Pulitzer Prize-winning author of Evicted Matthew Desmond published a piece in the New York Times Magazine titled “How Homeownership Became the Engine of Inequality,” highlighting the imbalance in federal housing policy and the fact that tax breaks like the MID favor higher income homeowners.
The proposal offered by the WSJ editorial board differs from NLIHC’s United for Homes (UFH) campaign in several ways. First, the UFH campaign proposes reducing the amount of a mortgage eligible for tax relief more modestly than the WSJ editorial, to $500,000 rather than $250,000. Second, the UFH campaign would convert the deduction into a tax credit, which would provide greater tax benefits to 25 million lower income homeowners. Finally, the UFH campaign proposes to reinvest the $241 billion in savings from these two changes in affordable rental housing for people with the greatest needs, instead of using the savings to lower tax rates largely benefitting the wealthy and corporations.
The WSJ editorial argues that the MID distorts the market by encouraging investment in housing, instead of more productive economic activity that might benefit everyone, and that the MID does not result in higher homeownership rates compared to countries without such a tax break. The editors criticize real estate industry groups for lobbying to protect the MID from reforms. “Even after its role in promoting the housing mania and panic a decade ago, the housing lobby wants more subsidies and more political favoritism,” the editorial states. “If tax reform were really about fairness, housing would be treated no differently than any other industry.”
Mr. Desmond’s piece in the New York Times Magazine features the stories of a number of homeowners and renters with different incomes, and shows how those homeowners with highest incomes and largest mortgages benefit disproportionately from the MID compared to lower income homeowners and extremely low income renters. The piece makes vivid the fact that the MID, which costs the government about $70 billion a year, is a highly regressive tax expenditure that primarily serves higher income households.
“Because of rising housing costs and stagnant wages, slightly more than half of all poor renting families in the country spend more than 50 percent of their income on housing costs, and at least one in four spends more than 70 percent,” Mr. Desmond writes. “Yet America’s national housing policy gives affluent homeowners large benefits; middle-class homeowners, smaller benefits; and most renters, who are disproportionately poor, nothing. It is difficult to think of another social policy that more successfully multiplies America’s inequality in such a sweeping fashion.”
Mr. Desmond’s piece highlights NLIHC’s UFH campaign noting that “Yentel’s coalition supports the idea of lowering the size of deductible mortgage debt to $500,000 and reallocating the savings to housing assistance for low-income families.” NLIHC President and CEO Diane Yentel is quoted saying, “The solution is so obvious. There are a number of programs that have proven success in ending homelessness and ending housing insecurity.”
The WSJ editorial board and Mr. Desmond’s pieces are just two examples of the growing number of those calling for reforms to the MID. Similar appeals to reform the MID have recently come from former George W. Bush Advisor Dennis Shea and former Obama Advisor Michael Stegman, the CATO Institute, J. Ronald Terwilliger, former Labor Secretary Robert Reich, and others.
The momentum to rebalance federal affordable housing policy is growing. Through smart tax reform, we have before us a tremendous opportunity to make homes affordable for the lowest income people.
The WSJ editorial is at: http://bit.ly/2pCbf2y
Matthew Desmond’s article is at: http://bit.ly/2q2rqYA
To join the UFH campaign go to: www.unitedforhomes.org