Why Does The Mortgage-Interest Tax Deduction Still Exist?

This is the latest story in our series on money in politics.

The mortgage-interest tax deduction benefits the rich more than the poor. It has little effect on home ownership. And it isn’t even really a bargain for homeowners, because it raises home prices.

“The mortgage-interest deduction, from a purely policy perspective … makes no sense,” a policy adviser to a U.S. Senator told me.

So do policy advisers in Washington tell Congressmen to fight against the mortgage-interest tax deduction?

“If you’re relatively green in Washington, I suppose that happens,” the adviser said. And I suppose you’re laughed at. The mortgage-interest deduction is a sacred cow.”

Everyone in Washington knows that there are many powerful forces making sure that no one ever suggests getting rid of the mortgage interest deduction. Jimmy Williams, a former lobbyist for the National Association of Realtors, was one of those forces.

“If I were at the Realtors right now, I’d declare war” on anyone who tried to get rid of the deduction, Williams says.

He would run ads, encourage Realtors across the country to make phone calls, and give money to the most powerful legislators in Washington. “And then you sit back and just say, ‘You really want to go down this path? That’s just not a really smart way to run for reelection.'”

Jamie Gregory, who currently lobbies for the Realtors, says if you got rid of the deduction tomorrow, home prices would fall all over the country, which would destabilize the economy. And besides, he says, the biggest lobby in favor of the deduction is homeowners.

“For middle-class Americans, either doing away or limiting the mortgage interest deduction is going to be a tax increase,” he says.

People who have bought a house assuming they’ll get a break on their taxes each year want that tax break. They might not be able to afford the house they’re in without it.

Of course, you could phase the deduction out over time. You could make it apply only to future home-buyers. Who knows what solutions smart policy staffers in DC could come up if they weren’t afraid of being laughed at for being so naive?

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