Repealing the Home-Mortgage-Interest Tax Deduction

With the suggestion from U.S. Housing and Urban Development Secretary Shaun Donovan that the mortgage interest tax deduction could be reduced, reporters followed up with additional questions only to find the Obama Administration has not specifically endorsed a reduction. The deduction costs the U.S. Treasury an estimated $120 billion annually, and some say it is counterproductive and inefficient. The deduction has encouraged more and more Americans to buy houses in the suburbs and increased prices in urban locations, making it more difficult for middle-class Americans to own a house because supply is constrained and demand is high.

This abandonment of the urban core has led to high obesity rates, urban sprawl, abandoned buildings, and more greenhouse gas emissions. Additionally, the deduction helped reduce government revenue, contributed to the housing bubble and foreclosure crisis, and transferred additional wealth from renters to homeowners. Although many argue that the deduction makes it easier for more Americans to buy houses, Harvard Economist Edward Glaeser reports that lower income households do not itemize their taxes and therefore reap no benefits from the deduction. He says, "My own research in this area found that when the value of the interest deduction rose, during periods of high inflation, there was no observable increase in the homeownership rate."