If you guys want some numbers about the home mortgage interest deduction I'd suggest checking out
this highly informative table from one of my favorite books,
The Benefit and The Burden. It provides highly productive perspectives to use as you think about taxes and tax reform, as I mentioned last time I waded into a
flat tax thread.
I am incredibly anti-HMID. Here are the arguments that have been made in favor of it in this thread from my reading:
1)
I receive this benefit and want it to continue. Well, you probably receive a very small amount of this benefit. If it were eliminated as part of revenue-neutral tax reform - tax rates dropping enough to offset the revenue gain from the elimination - your taxes would still probably be lower if you owned a reasonably sized house. The fact is that the top handful get the lion's share of the home mortgage interest deduction and we get either none of it or very little. Would your taxes really be higher if you were in the 10% bracket because of the revenue preserved by cutting the deduction?
2)
The government should encourage homeownership. I don't know if it should; that's a horizontal transfer to people who invest in houses from similarly situated other taxpayers who own restaurants or index funds or college degrees. But even if the government should do so, it could do so with a limited HMID like the one velocistar proposed. As my link demonstrates, people with five figures in their AGI get only 31% of the HMID. Cut it off there, or at $200,000 AGI even, or a similar threshold based on interest amount, and you can still subsidize homeownership without giving away so much revenue. You can broaden homeownership without paying 39.6% of the interest on billionaires' mortgages.
3)
This is small potatoes and we should worry about state and local government spending instead. Wrong! The HMID is
$100B this year, or half the size of all the revenue collected by the corporate income tax. It's enormous. The Benefit and the Burden had a great pie graph that I can't seem to find a preview of, but it seems that it's the size of most of the other tax expenditures combined. Additionally, fixing the HMID
would address state and local government spending! When taxpayers deduct their property taxes, the IRS is effectively transferring 39.6% of the property tax amount from the federal government to your local government. If the local government thinks a project is only just worth it now, it'll probably not be worth it if the IRS no longer kicks in 40% of the cost! (The state and local interest bond exemption works the same way.)
There may be something to the idea that housing prices would be strongly impacted by an elimination of the HMID. I think the answer here is to move to a limited deduction so that the top few percent of houses may decline in value but the effect on the total housing market should be minimal. The other common objection, not raised in this thread yet to my knowledge, is that eliminating the deduction makes it harder to deduct other deductions from AGI like charitable contributions. That's not an easy one to answer but I'd propose making all deductions that survive tax reform be
for AGI.