Al DelliBovi is president of the Federal Home Loan Bank of New York and served as deputy secretary of the Department of Housing and Urban Development from 1989 to 1992. He can be reached at Al.DelliBovi@fhlbny.com.
Not a High-Wire Act
Repealing the mortgage interest deduction would yank the safety net from millions of Americans—not just the rich.
May 9, 2013
Last summer, the nation was captivated by Nik Wallenda, the high-wire artist who successfully crossed Niagara Falls on a tightrope. Millions tuned in to watch the aerialist cut through the mist, avoiding a single misstep during his record-setting journey. It was a spectacular display of balance as Wallenda walked along the thin, steady wire. This summer, all eyes will be on Washington, where another sort of balancing act will be performed: lowering the U.S. deficit and balancing the budget. But in this debate, it is vital that our policies continue to protect housing, the stable ground for so many Americans.
The economic benefits of a strong housing market are clear. Housing has contributed 17 to 19 percent to the national gross domestic product on average over the past four decades; it still accounts for about 15 percent of GDP despite ongoing challenges to housing markets around the country. And home ownership remains the greatest tool for wealth creation our nation’s families have. For much of the past 25 years, approximately one-quarter of total household wealth has been the equity owners have in their homes. While housing has long been a cornerstone of our economy and a key driver of economic development and job creation, it is also the foundation of strong families and healthy communities. A report released in 2011 by the National Association of REALTORS® noted that home ownership had a significant positive correlation with community involvement, neighborhood stability, children’s educational success, and even physical and psychological health. It is important to keep these truths top of mind as you build trusting relationships with clients.
The NAR paper stated that “home ownership has been an essential element of the American dream for decades,” and over this time, home owners across the income spectrum have benefited from the mortgage interest deduction. There are those who would have you believe that the mortgage interest deduction benefits only upper-income taxpayers, but that is simply not true. An April 2013 study by the Hudson Institute, which analyzed individual income tax returns in 2007, found that the greatest share of the mortgage interest deduction lies not with the super rich but with the middle class. More than half of this deduction is claimed by households within the $75,000 to $200,000 income range, and 22 percent of the deduction went to households with incomes between $50,000 and $75,000. Conversely, the top5 percent of taxpayers account for less than 20 percent of the deduction. When compared to deductions for charitable contributions, state and local taxes, and property taxes, the importance of the mortgage interest deduction is even more evident: “Even in the lower half of the income distribution, taxpayers benefit more from the mortgage interest deduction than from the others.” And as for claims that not all home owners can take advantage of this deduction: In 2007, 35.2 million taxpayers claimed the mortgage interest deduction, in line with those claiming the three other major deductions.
Housing provides our economy with a stable ground, but it also gives our nation a more even playing field with regard to wealth equality. The Hudson Institute report found that, in 2007, while the richest 10 percent of households owned about 80 percent of household wealth, that group owned only about 45 percent of all home equity. That means more than half of home equity is held by middle- and lower-income households.
Our national housing policies shouldn’t turn home ownership into a high-wire act. To repeal the mortgage interest deduction would yank the safety net out from under millions of U.S. households as they stride toward the American dream. And while performing without a safety net may be fine for Mr. Wallenda, we do not need to force such a daredevil act on the American public.
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Updated: November 30, 2020