End of Mortgage Interest Deduction Would Hurt Economy: Report

End of Mortgage Interest Deduction Would Hurt Economy: ReportEnding the mortgage interest deduction for homeowners would push some people into higher tax brackets, and those affected would respond to the higher marginal tax rates by working and investing less.
The Tax Foundation – a nonprofit that weighs the pros and cons of tax reform — found in a new analysis that killing the MID (mortgage interest deduction) would cause the economy to shrink by $254 billion and the nation to lose 659,000 jobs. Wages also would fall at least 1.1 percent, it says.
Translation: the tax benefit enjoyed by many middle-income homeowners would siphon away their spending power.
The mortgage interest deduction allows tax filers who own a home and itemize their deductions to subtract interest paid on mortgage debt from their gross income.
In tax year 2011, filers deducted about $360 billion in mortgage interest, resulting in roughly $72 billion lost federal revenue.
The MID amounts to big savings for many homeowners, but the number of taxpayers claiming it and the average amount deducted varies widely across the nation and within states.
According to data based on the 2010 tax year, the average deduction amount claimed was highest in California ($15,755) and lowest in Iowa ($71,77).
Nonetheless, the MID proves a vital money saver for many homeowners, especially many who may have purchased homes or refinanced existing loans since the financial crisis.
Talk among lawmakers of possibly limiting the deduction is generating concern among middle-income homeowners and the housing industry since the tax break has long been considered untouchable.
The MID has been a cornerstone of both the tax code and home affordability for 99 years.
The Tax Foundation categorizes both sides of the argument over the MID.
Proponents say that no MID would amount to double taxation since mortgage lenders are taxed on the interest they receive, making the current practice largely tax neutral. They also say that the deduction promotes a social objective of encouraging home ownership.
The chief criticisms are that it is mostly claimed by upper-income taxpayers, and that housing is given less punitive tax treatment than many other forms of saving or investment.
Read the Tax Foundation’s full report.

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