Schedule A-minus

TaxProf Blog quotes Martin A. Sullivan of Tax Analysts on the mortgage-interest deduction:

We always knew the mortgage interest deduction was unfair — favoring those in high tax brackets with big houses over renters and low-income homeowners. But until we did the calculations — as far as we know, the first of their kind — we did not suspect the geographic dispersion of tax benefits would be so large.

In addition to the wide disparity in benefits, the other striking feature about the mortgage interest deduction is how well the subsidy correlates with Democratic strength. … [The fourteen] states with the highest per capita benefit were states captured by Obama in the 2008 election [Maryland, District of Columbia, California, Connecticut, Virginia, New Jersey, Massachusetts, Colorado, Washington, Nevada, Hawaii, New Hampshire, Minnesota, Delaware]. In the six states with the lowest per capita benefits [West Virginia, Mississippi, North Dakota, South Dakota, Arkansas, Oklahoma], Republican challenger John McCain won the vote.

Of course, in those six states, housing prices tend to be lower, so less money is borrowed, therefore less interest is deductible.

Is this an argument for getting rid of that particular deduction? No more so than for getting rid of any other particular deduction, if you ask me: it’s unreasonable to expect financials, or much of anything else, to be evenly distributed across 50 states and 310 million people. It would certainly cost me money were it discontinued — the $131 figure quoted for Oklahoma is about one-eighth what the deduction saves me for 2010 alone — but I suspect that it’s not going away unless there are adjustments elsewhere in the code.

Then again, Sullivan says:

As tax reform moves forward, we can expect Democratic senators to be the most lukewarm to proposals for limiting the mortgage interest deduction to less expensive homes. And if it is a choice between cutting the mortgage interest deduction and cutting tax subsidies for energy companies, that will be an easy decision for the senators from Oklahoma.

Yeah, sure. Call me when someone, Democrat or Republican, gets the gumption to kill off the ethanol boondoggle.







2 comments

  1. ms7168 »

    25 January 2011 · 8:20 pm

    The more they remove deductions and raise the standard deduction the less important it becomes to itemize. So they may as well delete the mortgage interest deduction. Last year my itemized deductions were only a few hundred over the standard deduction. HOWEVER . . if I itemize I get to carry that over to the State return and if I take the standard deduction I cannot. And it helps tremendously on the State which gives you practically nothing otherwise.

  2. Jeff Brokaw »

    26 January 2011 · 12:34 pm

    Well, at least we know from recent history that the government completely understands the full economic implications of meddling in the mortgage market like this, and always factors that in to the the discussion.

    No unintended consequences here! Right? Right!

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