Value of Mortgage Interest Deduction Declines According to JCT

The Joint Committee on Taxation (JCT) of the U.S. Congress released its report entitled Estimates of Federal Tax Expenditures for Fiscal Years 2012-2017 on February 1. This annual report shows the number and costs of federal tax expenditures, including the mortgage interest deduction, estimating their cost to federal government each year and for the total period studied. According to the report, “special income tax provisions are referred to as tax expenditures because they may be analogous to direct outlay programs and may be considered alternative means of accomplishing similar budget policy objectives. Tax expenditures are similar to direct spending programs that function as entitlements to those who meet the established statutory criteria.” The cost of the mortgage interest deduction (MID) is estimated to be $69.7 billion for FY13 and $379 billion for the period of 2013-2017. The cost of the MID is down from the $89.6 billion that JCT projected for FY13 in its 2012 report. Reductions in the size and number of mortgages may account for the change. The JCT estimates of tax expenditures generally differ from those of the U.S. Department of Treasury due to differences in methodology. The last Treasury estimate of the cost of the MID for FY13 was $100.9 billion and was included in the President’s FY13 budget proposal, released in February 2012. The delay until March of the President’s FY14 budget proposal (see article on the federal budget below) means the new Treasury estimates will not be out until then. The JCT report includes a number of tables that provide details about the income of taxpayers who receive the benefits of tax expenditures. There were 155,879,000 returns in 2011. (Returns include both filing and non-filing tax units. Non-filing units are individuals whose income is exempt from federal income tax.) Four percent of the returns had incomes over $200,000 and 19% had incomes over $100,000. Just 22% of returns, or 34,103,000, claimed the MID. The top 4% in income ($200,000 and above) received 35% of the MID benefit. The top 23% in income ($100,000 and above) received 77% of the benefit. NLIHC proposes modifications to the MID that will make it fairer and provide tax benefits to a greater number of mortgage borrowers with incomes under $100,000, who make up the bottom 77% in income. Capping the MID at $500,000 and converting the deduction to a tax credit would greatly expand the number of homeowners with incomes under $100,00o a year who get a tax break and would save the federal government money that could be directed into the National Housing Trust Fund. The JCT report is attached.Click here to read more about the NLIHC proposal.