Cityscape: Volume 16 Number 1 | Article 13

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Housing, Contexts, and the Well-Being of Children and Youth

Volume 16 Number 1

Mark D. Shroder

Michelle P. Matuga

Misinformed and Misled About the Benefits of the Mortgage Interest Deduction

Dennis J. Ventry, Jr.
University of California, Davis

Tax experts have long indicted the mortgage interest deduction (MID) for distorting the housing and mortgage markets and for inequitably distributing its benefits (Brazer, 1959; Paul, 1956; Surrey, 1958; Trammell, 1959; Ture, 1956; Vickrey, 1947). It creates a false baseline for the cost of housing (Anderson, 2007; Bruce and Holtz-Eakin, 2001; Capozza, Green, and Hendershott, 1996; Hendershott and Slemrod, 1982; Poterba, 1984), encourages taxpayers to pay for homes with debt rather than with cash or financial assets (Gale, Gruber, and Stephens-Davidowitz, 2007; Poterba and Sinai, 2011; Sullivan, 2008), causes wasteful and unproductive misallocation of physical and financial capital (Gervais, 2002; Jorgenson and Yun, 1990; Mills, 1987; Taylor, 1998), and distributes benefits disproportionately to upper income households (Brady, Cronin, and Houser, 2003; Carasso, Steuerle, and Bell, 2005; Eng et al., 2013; Gyourko and Sinai, 2003; Sullivan, 2011; Toder, Harris, and Lim, 2009; Toder et al., 2010). Furthermore, the MID results in less economic productivity (Acharya et al., 2011), reduced labor mobility and greater unemployment (Caplin, Freeman, and Tracy, 1997; McCarthy, Van Zandt, and Rohe, 2001; Winkler, 2011), depressed real wages, and a lower standard of living (Sullivan, 2005). The MID is so damaging to the economy that nearly every economist believes that “the most sure-fire way to improve the competitiveness of the American economy is to repeal the mortgage interest deduction” (Sullivan, 2005: 407).