Why the MID Deserves to Stay

Limiting the mortgage interest deduction would hurt middle-income earners.

September 1, 2010

We’ve heard increased chatter among opinion makers about the need to eliminate or trim the mortgage interest deduction. The argument goes something like this: Not only would ending the MID create a deep source of money for reducing the U.S. budget deficit, but in the aftermath of the mortgage crisis, the country needs to rethink its favored tax treatment of homeownership.

However, this argument downplays two critical facts. First, home owners already pay 80 to 90 percent of the income tax in our country, and among those who claim the MID, almost two-thirds are middle-income earners. 

So, when we talk about the beneficiaries of this tax benefit, we’re talking about households who are the pillars of federal income tax revenue. 

We would now be asking them to shoulder an additional tax burden, and also to brace for a 15 percent drop in home values—that’s how much we can expect values to fall as buyers discount the value of the deduction in their purchase offers.

Second, critics who link the mortgage meltdown to our country’s support for homeownership are ignoring the origins of the crisis: unprecedented laxity in underwriting and faulty ratings by credit rating agencies of the securities backed by those mortgages. Through the terms of 17 presidencies, the MID has brought remarkable stability to the housing market. 

Yet, critics fail to recognize why our country has been so supportive of homeownership. Academic studies have demonstrated positive social benefits, including lower juvenile delinquency rates and higher student achievement among children of home owners.

Whatever deficit reduction might be realized by taking a carving knife to the MID would come at an intolerably steep price: trillions of dollars in wealth destruction and a new uncertainty in what has long been recognized as a bedrock of our economy.

Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Lawrence Yun is chief economist and senior vice president of Research at the  National Association of REALTORS®. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1.1 million REALTOR® members. Dr. Yun creates NAR's forecasts and participates in many economic forecasting panels, including Blue Chip and the Harvard University Industrial Economist Council. He appears regularly on financial news outlets and is a frequent speaker at real estate conferences throughout the United States. USA Today recently listed him among the top 10 economic forecasters in the country.