It’s tax time, and as I write, last-minute filers across Springfield are huddled over dining tables, poring through store receipts and bank books looking for deductions that might reduce the cost of being a citizen.
One of the most popular is the deduction of money paid in interest on one’s house mortgage. Back in 2009, I griped about the folly of mortgage interest deduction or MID in my column, “Just extra money.” The MID is bad law, bad policy and bad finance – which, I guess, explains why it has so many supporters.
Because the MID is figured as a deduction, the more you pay in interest, the more you reduce your taxable income. That favors families paying off bigger houses, and favors them by a lot. According to a recent report from the Center for Budget Policies and Priorities, families with incomes over $75,000 receive 88 percent of the benefits from the home mortgage deduction.
Families making that much can afford to buy a house without the taxpayers’ help. People who make less, however, usually don’t claim the MID because anyone paying less than $12,000 in interest a year is better off claiming the standard deduction instead. Thus do the people who need the most help get the least benefit from the deduction that is widely ballyhooed as vital to homeownership.
There are better – that is, more equitable -- ways to funnel subsidies to house-buyers. One of them is to simply let people deduct a percentage of their interest paid as a credit against taxes owed. That way the owners of modest houses get the same break as the mini-mansion owner. Unfortunately, politics is not about doing the sensible thing, it is about doing the popular thing,