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Throughout U.S. history, homeownership has been encouraged because it strengthens communities, supports the economy, and helps families build wealth – and for many people, owning a home means gaining a foothold into the middle class. Removing favorable tax treatments for homeownership, like the mortgage interest deduction, would prevent many Americans from building the kind of financial security that owning a home can provide.
The mortgage interest deduction helps many families become home owners by reducing the carrying costs of owning a home. The ability to deduct the interest paid on a mortgage can mean significant savings at tax time. For example, a family who bought a home last year with a $200,000, 30-year, fixed-rate mortgage, assuming an interest rate of 5 percent, could save nearly $3,500 in federal taxes when they file next year. That’s real money they can use to pay down other debts, save for their children’s college education, or put away for retirement.
Unlike the very rich – much of whose wealth is tied to the stock market – the wealth of most middle-class American families is connected to their home. Millions of these Americans bought their homes with the understanding that mortgage interest is tax-deductible, and many of them have steadily paid down their mortgages to build equity in their home.
The nation’s homeowners already pay 80 to 90 percent of U.S. federal income taxes. Raising taxes on them now will destroy the hard-earned equity and wealth accumulation of all home owners, independent of their tax filing status, and crush the dreams they’ve worked hard to achieve, such as college, retirement or starting a small business. In a time when the middle class faces increased economic pressures, hard-working, home-owning families must continue to receive this important tax benefit.
America’s housing markets are on the mend. If the mortgage interest deduction was reduced or eliminated, the value of the nation's property owner’s hard earned wealth would decline because of lower demand. The level of wealth destruction would depend on the degree that the mortgage interest deduction was trimmed. Home sales also help generate more than 2.5 million private-sector jobs in an average year. Since housing is a key driver in our national economy, accounting for more than 15 percent of the U.S. Gross Domestic Product, this would ultimately hinder a housing market that is still recovering, put jobs at risk, and place the broader economy under stress. As the housing market and economy continue to stabilize, Congress should focus on doing no harm to housing and America’s 75 million homeowners.
The mortgage interest deduction is essential to homeownership, which is the foundation for a healthy middle class, and vital to the stability of the housing market and economy.
Lawrence Yun is chief economist of the National Association of Realtors®