all partiesPhoto Source: Newsweek 

By Sheila Crowley 

As predictable as day becomes night, so is the response from the home building and realtor lobbyists whenever anyone suggests that the mortgage interest deduction (MID) be eliminated. In the Republican presidential debate last week, candidate Dr. Ben Carson said he favors getting rid of all tax loopholes including the MID. Denunciations from MID defenders poured in with the usual dire warnings of collapsing home values and depriving people of attaining the American dream.

Let’s add some perspective to the debate. Lots of smart people on the right and the left think the MID is a boondoggle and should be eliminated. But there are good ways to reform the MID and there are much better ways to use the money than to subsidize expensive homes.

A simple change that many people agree is reasonable would be to lower the portion of a mortgage on which the interest can be deducted. Under current law, someone can take out a million dollar mortgage (and a $100,000 home equity loan) and get a tax break for the interest on the entire amount. How about setting the limit at a more reasonable level? Speaker of the House Paul Ryan (R-WI) supports limiting it to the first $500,000 of a mortgage.

Here are the facts. Between 2012 and 2014, almost 20 million mortgages were taken out in the U.S, but only 5% of them were for more than $500,000. These large mortgages are concentrated in a handful of high cost areas and resort destinations. The percentage of mortgages over $500,000 exceeds 10% in just 48 of the 3143 counties in our country. In 33 states, the percentage is under 2%.

The most important fact is that if Congress decided that a homeowner can get a tax break on the interest on just the first $500,000 of a mortgage and phased this change in over five years, an additional $95 billion would be generated over ten years. What if Congress also decided to use the new revenue to prevent and end homelessness in the U.S.? Surely everyone can agree that would be a better use of federal housing resources than to subsidize million dollar homes.

I challenge the moderators at the next debate to ask the candidates what they think of this idea.

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