Over the years, Congress has approved many new tax deductions in efforts to help stimulate the economy and boost dismal national markets. One example is the mortgage interest tax deduction, which allows for homeowners to deduct a portion of what they paid in mortgage interest from their overall tax debts. Deductions like these can significantly reduce tax liability, saving the taxpayer money or even granting a larger than average refund.
Come tax season, many households will be counting on deducting a portion of their mortgage interest from their tax bill. However, rumor has it the mortgage interest tax deductions may not be available to claim. While some are pleased by this announcement, many others are worried about the economic outcome and effects on the housing market.
Why The Controversy
Originally, the tax breaks were meant to be benefit lower-to-middle class homeowners that could use a little financial relief for maintaining their mortgages, making home ownership affordable. It was supposed to be stimulating local housing markets and bring up property values, but has ended up targeting the wrong taxpayers. The tax deductions do nothing for renters, who make up a large majority of urban residents, leaving the deductions available for the minimum share of residents. In fact, less than one-third of those who do qualify for the deductions actually benefit from the tax break. The most benefit seems to apply to higher-income taxpayers that live pricey homes and have many additional tax breaks for their other assets.
Aside from the fact the tax break isn’t reaching its target audience, the national Treasury loses nearly $100 billion a year through the mortgage interest tax deduction. Now that our national debt has reached its record high $12.4 trillion, another $1.5 trillion is expected to be added over the next decade if the mortgage interest tax deduction continues.
The problem is twofold: (1) if we keep the tax deduction we stand to further increase our national debt, while contributing to the failure of missing the target taxpaying audience and (2) if we cut the tax deduction we stand to push many middle class taxpayers out of a beneficial program, which may threaten their ability to keep their homes without the much needed tax break.