Now that taxes have been filed (phew), we’re starting to get a look at how changes to the tax code made by the Republican Congress are affecting key programs. One of these, the Mortgage Interest Deduction (MID), is a provision that doesn’t achieve its purported goal to increase homeownership and also skews its benefits towards richer households.
A recent report by the Joint Committee on Taxation (a non-partisan arm of Congress, like the Congressional Budget Office) shows that while the recent tax bill will shrink the MID considerably, it also will cause the program to give even an even larger share to the wealthiest homeowners.
The MID in 2018 will be half as large as it was last year — the total amount of tax deductions will shrink from around $60 billion to $25 billion. That’s largely because the increase in the standard deduction will cause far fewer taxpayers to itemize their deductions, which is required to claim the MID.
The tax bill also lowers the cap on the amount of mortgage debt the MID could be claimed from $1 million to $750,000. Ordinarily this change would make the deduction more progressive, but the massive shift of middle-income taxpayers to the standard deduction wiped out any of those gains. In fact, the Mortgage Interest Deduction of 2018 is significantly more inequitable that it was in years past.
Last year, about 4% of the MID went to households making more than $1 million a year. With the changes to the rest of the tax code, those households now take close to 10% of the deduction.
To put the amount of the deduction in to perspective, this program alone gave an average of $5,200 in federal subsidy on mortgage debt to households making $1 million or more. The average tax cut for the lowest-income households in the entirety of the Republican tax bill was about $60.
Despite the fact that the deduction is significantly smaller compared to last year, JCT estimates that it will still continue to grow over time — reaching over $105 billion in federal spending by 2026. That’s far too much to be spending on a housing program that doesn't actually work to house people.