Free Minds & Free Markets

Kill the Mortgage Interest Deduction Now!

It's the worst sort of social engineering and special-interest payoff via the tax code.

Thankfully, one of the biggest scams in the American tax code is finally under attack in the House version of Republican tax reform.

It's the mortgage-interest deduction, which currently lets homeowners deduct interest paid on mortgages of up to $1 million for two houses. Ever since owning a home has been a central tenet of the American Dream since the end of World War II and the rise of suburbia, it's been a given that deducting mortgage interest from your taxes is as American as apple pie.

The House plan would limit filers to deducting interest on the first $500,000 of a mortgage on just one house, sending a blind panic through wealthy home owners, realtors, and the building trades, all of whom are terrified that a government subsidy is being yanked away from them.

But the real problem with the House bill is that it doesn't go far enough. We should scrap the mortgage-interest deduction altogether and let housing prices reflect real market values.

The mortgage-interest deduction is typically justified by claiming that it lets people—especially vaguely defined "middle-class" people—afford homes. But it also increases the price of housing by making it artificially cheap to borrow, meaning homebuyers are willing to pay more. England, Canada, and Australia don't let their taxpayers deduct their mortgage interest and they all have higher rates of homeownership than the United States.

The mortgage-interest deduction disproportionately benefits the wealthiest Americans, who soak up almost all the $70 billion a year it costs in foregone revenue each year. Reason Foundation's director of economic research, Anthony Randazzo calculates that only 20 percent of tax filers claim the mortgage-interest deduction. That group by and large are part of six-figure households in a country where the median household income is just $57,000.

Killing the mortgage-interest deduction might cause a one-time 7 percent drop in real estate prices, according to one estimate, with wealthy homeowners feeling most of the pain.

As a homeowner myself, that seems like a small price to pay to end a policy that distorts the real estate market, complicates the tax code, and benefits mostly wealthier Americans on the false promise that it makes home-owning affordable for the middle class.

The mortgage-interest deduction is just special-interest pandering wrapped in a gooey story that equates "the American Dream" with having a mortgage. The tax code should be designed to raise the revenue necessary to pay for essential services, not to nudge and prod us into spending money on something the government decides is good for us.

Produced by Todd Krainin. Written and narrated by Nick Gillespie.

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Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • DajjaI||

    Yep. Another thing you didn't mention is that it enables the 30 year mortgage. "Oh I would still get a 30 year mortgage without the deduction." OK and you're an IDIOT.

    And then the 30 year mortgage enables CDOs which were behind the Great Recession.

    Please G-d rescind this abomination.

    Jill Stein approves this message even at the risk of getting banned again.

  • Brian||

    At about the 50th time you post about getting banned, do you feel weird?

  • DajjaI||

    Yep. I will stop feeling weird when they un-ban me (addictionmyth, dajjaL).

  • Incomprehensible Bitching||


  • DajjaI||

    And you, why don't you stick to one username.

    - Chipper Morning Baculum

  • Shaboobie||

    "Everyone knows it's still me, numbnuts"

    Everyone knows it's him too.

  • BestUsedCarSales||

    I was pretty surprised when I finally learned that Citizen X and Citizen X #6 were the same.

  • MarkLastname||

    Who doesn't like to feel some damgerpus once in awhile?

  • Shaboobie||

    When you're rich and powerful, they let you.

  • Unicorn Abattoir||

    At this risk of being forced to proofread Reason articles, shut up about being banned already.

  • DajjaI||

    How is it that the commentariat hasn't changed in over two years? #genuinequestion

  • Diane Reynolds (Paul.)||

    I'll have you know the commentariat changes every 4 years. I know this because I've seen half a dozen changeovers.

  • Juice||

    What's nice about the 15 year mortgage is that you pay off your loan in half the time, but you don't come near to paying twice as much every month, more like 1.5 x. The problem is that the whole thing is structured to where the house you can barely afford on a 30 year mortgage is probably the "worst" house you'll be willing to buy. That same house will be slightly out of your reach on a 15 year mortgage.

  • Devastator||

    This is the way I handle my 30 yr mortgage, pay as if it's 15, only slightly more interest over the life time of a regular 15 year loan. I don't care what anyone else does. It's a big of security hedge for those times if unemployment were to happen for a little while. Some people can't think outside of the box or outside of extremes. You seem like you can, good on you.

  • Fist of Etiquette||


  • Jimoxe||

    I'm so old I remember when you could deduct the interest you paid on your credit cards on your federal income tax.
    Talk about nudging....

  • Crusty Juggler||

    Where my American dream gone?

  • Diane Reynolds (Paul.)||

    It's driving away from you on a bumper sticker.

  • Crusty Juggler||

    Probably on a car built in Mexico.

  • BestUsedCarSales||

    The Pinto it a fine car.

  • Scarecrow Repair & Chippering||

    Shhhh! That Top Secret info!

  • Jerryskids||

    The mortgage interest deduction subsidizes buying a home. Buying a home influences settling down, having kids, keeping a steady job, become a fine, upstanding, tax-paying member of the community. In other words, staying put in one place where the government knows where to find you and your money. It's that much harder for the central planners to centrally plan if the sheep keep running off every time you need the fleece.


    Get rid of the tax deductions for being married and breeding.

  • MarkLastname||

    Um, why not?

  • Juice||

    I thought there was a penalty for being married (in many states at least).

  • EscherEnigma||

    There's both. Mostly it depends on how close you and your partner's incomes are. Single-earner, or big gap between the income? Bonus. Pretty equivalent income? Penalty.

  • John Galt is back||

    Mostly it depends on how close you and your partner's incomes are

    That's backwards. Assume $80k joint income

    40 + 40 = 10,452 + 1,025 = 11,477 .vs (5751 X 2) = 11,502 (roughly equal)

    25 + 55 = 3285 + 9479 = 11477 vs (3285+9479) = 12,764 (joint = penalty)

  • NotAnotherSkippy||

    The "deduction" for being married only applies to the middle class. Above or below that gets screwed with higher marginal rates.

  • John Galt is back||

    $400,000 is not middle class

  • Could not connect to remo||

    There are no tax deductions for being married. There are tax penalties. If you don't believe me compare the tax differences between a married couple filing jointly versus one filing separately when one spouse makes substantially more than the other spouse.. What have you got against kids? You obviously have no idea what it costs to raise a kid from infancy to adulthood. Additionally, when children become teenagers, they can start working for wages and start paying taxes like the rest of us. If people stop having kids, where's the next generation of laborers supposed to come from? The answer is of course new immigrants, about which I'm sure you also have strong negative feelings..

  • John Galt is back||

    We've had a negative replacement birthrate since 2008 or so.
    Without immigration, our population would be declining. So when Trump's cult retires, their own kids will get jammed with MUCH higher FICA taxes! duh

  • Davulek||

    Get rid of the taxers

  • JFree||

    Not really. The purpose of the mortgage interest deduction is to subsidize the creation of new debt (ie money) by banks. That's the unholy alliance here - govt scratches the banks backs and in exchange govt gets an automatic demand for its debt issuance without having to 'market' it or take price risks.

    Even better - with that mortgage-backed dollar serving as a reserve currency - everyone else in the world is subsidizing US homeowners 'regressively' (meaning the bigger the deductible interest, the bigger that subsidy). Which is - surprise surprise - why the D's and R's will never reduce govt spending since that will tend to mean less govt debt issuance which will also mean less mortgage creation.

  • Jgalt1975||

    Uh, if that was the primary purpose of the deduction, then why did the feds ever eliminate the deduction for credit card interest?

  • JFree||

    Prob cuz one is ultimately secured by land (which any territorial-based govt has an interest in) and the other is secured by nothing at all.

    Land-loan issues go back way before the Fed - Jackson and 2nd bank, Jefferson and Louisiana Purchase, territorial land sales and statehood beyond the 1st 13.

  • JFree||

    Yeah well - how come only three countries do a residential mortgage full interest deduction then? It's an asset everywhere. And in the other two (NL and CH), taxable income is increased by some % of the property value (ie assume its a potential business that generates rent even if one isn't renting it out but living in it - imputed commercial real estate). So there is a possibility that the interest deduction doesn't even offset that extra imputed (and taxable) income.

    Pretty much every country has interest deduction for corporate/business type loans. Sometimes the interest adjustment is as-is - sometimes there's a leverage cap (where debt is considered equity for tax purposes and interest isn't deductible) to prevent serial bankruptcy abusers (like Trump).

    Yes - the middle class benefits in a way. We buy bigger houses than we otherwise would - and we sprawl all over the landscape more than we otherwise would (thus also incurring higher transport costs). But this ain't about an individual household. It's about land.

  • Devastator||

    The gubmint gon' git us. I'm gonna go live in a cave on top of that thur mountain, so they caint find muh.

  • $park¥ leftist poser||

    Don't you DARE touch my mon...

    The House plan would limit filers to deducting interest on the first $500,000 of a mortgage on just one house

    ... never mind.

  • Juice||

    I would really hit hard in DC and surroundings where a decent 1200 sf house will easily run you $500k.

  • Speaker||

    That would mean that merely most of the house is deductible.

  • Ska||

    No, just most of the interest on the debt.

  • Ska||

    To play devil's advocate, the median price of a home in NYC is close to 600K.

  • Devastator||

    And just about the entire state of California. This is clearly a bloody nose to blue states which tend to have higher valued houses :D

  • Hugh Akston||

    The mortgage interest deduction is a good place to start. Then move on to killing the child tax credit. Hopefully by then you will have levelled up enough to take on the boss fight of killing the employer healthcare tax break.

  • Rat on a train||

    You better spend a lot of time in the forest killing boars before you take on that boss monster.

  • eyeroller||

    all of whom are terrified that a government subsidy is being yanked away from them

    What makes a tax deduction a "subsidy"? When you don't like it, I guess.

    Or is Reason in the habit of referring to all tax deductions as "subsidies"?

  • Hugh Akston||

    It's a subsidy when it is a reward/incentive for select recipients who jump through the right government hoops.

  • eyeroller||

    So, what are some tax deductions that aren't subsidies?

  • ||

    Remember when Obama gave everyone a $100 tax refund? No hoops were jumped through that was a straight deduction/cut.

    Feels so much better, right?

  • Hugh Akston||

    The standard deduction comes to mind.

  • Fairbanks||

    Deductions for expenses that are used to rectify unwanted conditions and that reduce one's available income for discretionary consumption. Casualty losses and medical expenses might be examples.

  • CE||

    state and local tax deductions (SALT). You don't have the option to not pay them.

  • Hugh Akston||

    No, but they do subsidize living in high-tax states.

  • NotAnotherSkippy||

    It's a damn shame that they force you to live there.

  • Lester224||

    ^^ This

  • Devastator||

    As are business and corporate tax deductions. Flat rate on net income, no exceptions, or shut the fuck up.

  • John Galt is back||

    How will you get elected on a 65% tax increase to the middle class?

  • ||

    It's a deduction when they demand less of your money; it's a subsidy when they give you someone else's money.

  • Devastator||


  • albo||

    You're angering the Realtors (registered trademark).

    You're responsible if anyone is injured in the subsequent Million Gold Blazer March on Washington.

  • Crusty Juggler||

    Honey and Vinegar hardest hit.

    Also, this guy.

  • Diane Reynolds (Paul.)||

    Did Reason's site get hit by a pipe bomb?

  • Eidde||

    Also they no longer make ice cubes because the old lady who had the recipe died

    Wait, wrong joke.

  • janon||

    Blue state tax subsidy. Yeah, ok. We send *far more* into the Fed than any 10 crap hole red states *with* the damn writeoff.

    But you know what... why dont all of you white nationalist geniuses write the POS senators that you keep in power and demand that the "parasite blue states" be *cut off*

    We would like *nothing more*. The comments in extremists dumps like this tell the tale... "libertarians" cackling like psychopaths b/c "blue states are being harmed"

    let's fast forward to the divorce already and cut the BS

  • CE||

    Another housing led recession would be a small price to pay? Yikes.

  • Hugh Akston||

    The patient could die if you don't keep injecting him with heroin.

  • JFree||

    So you are saying that central planning of house prices via the voting system is perfectly ok because embedded house price inflation is a good thing and it benefits everybody.

    If you have kids, you do realize that they really really want you to die - like yesterday. And your grandkids - hell you might want to test your food for poison.

  • ||

    OT: Glenn Greenwald's Glorious MSM Takedown from Friday

    Money Quote: "So continually awful and misleading has this reporting been that even Vladimir Putin's most devoted critics — such as Russian expatriate Masha Gessen, oppositional Russian journalists, and anti-Kremlin liberal activists in Moscow — are constantly warning that the U.S. media's unhinged, ignorant, paranoid reporting on Russia is harming their cause in all sorts of ways, in the process destroying the credibility of the U.S. media in the eyes of Putin's opposition"

  • Kivlor||

    Darlin' this is a libertarian website. There's no need to advertise "NATURAL HERBS" most of the commentariat is almost assuredly well-supplied.

  • PG23COLO||

    Sad to see that senior Reason writers think that "allowing" some income earners to keep more of the money that they have earned, is a subsidy.

    Governments are not entitled to tax revenues, that is why they take taxes by force and by threats of violence.

    Reason does not understand that what you earn is yours. A robber who lets you keep some of what you earned is still a robber.

    To Reason: If you endorse the use and threats of violence against free people, that makes you a supporter of tyranny, not a supporter of free minds, free markets, and free people.

  • EirkKengaard||


  • John Galt is back||

    REAL libertarians don't suck the subsidy teat like you do..
    We oppose cronyism.

  • ||

    A far worse form of "social engineering" is so-called "progressive" taxation designed not only to punish productive people but to REALLY punish productive people. If we're all supposed to be "equal under the law," that ought to apply to taxation as well--and by "equal," I mean equal dollars, not equal tax rate. It's not like high-income people get more or better government services.

  • retiredfire||

    This article virtually dripped with animosity to those awful "rich" people, who were getting to keep a little more of their money, while still paying a hugely disproportionate amount of the nation's tax burden.
    The green-eyed monster, raises its ugly head.

  • EscherEnigma||

    It's not like high-income people get more or better government services.
    I wanna see a poor kid get released on parole because of "influenza".

  • John Galt is back||

    HenryMillerII DEMANDS a 70% tax increase on himself. Progressive tax rates subsidize more than half the entire core middle class ($40k-100k)

    Your own sacrifices for fairness are ....

  • janon||

    What a moron you are. The "rich" control 90% of the wealth of this country and climbing. Median income is *flat* for decades while productivity, corporate profits and CEO salaries *soar*

    If you're not "rich" yourself, you really are a pathetic joke.

    They dont get "more and better services"? The get *Congressmen* idiot. And whose interest do you think the trillion dollar military supports? You and your idiot flag waving buddies?

    Try the interests of corporate elites.

    This post says it all... libertarians (and their more socially repressed right wing clones) are either rich white elite themselves or abjectly ignorant morons

  • Robert||

    Why's a blogger here taking up space promoting an increase in a tax on anyone, anywhere in the world?

  • DMMinKS||

    As a renter I approve of this message.

  • retiredfire||

    You benefit from it, too.
    You're just too financially ignorant to realize it.

  • John Galt is back||

    So does every business or non-profit that rents its office space, store or factory.
    You're just too financially ignorant to know it.
    And somehow missed the topic of the article -- homeowners.

  • EscherEnigma||

    What kind of second or third-order effects are you talking about? Because the deduction we're actually talking about is limited to primary and secondary residences. Doesn't apply to rented-out properties.

    So while there may be some other business-expense related deduction that landlords enjoy, it's not the mortgage interest deduction.

  • John Galt is back||

    Doesn't apply to rented-out properties


    it's not the mortgage interest deduction

    The interest is an expense taken to earn income. ALL real estate was taxed on gains at sale, until they passed yet another huge middle-class subsidy.. THAT is where the mortgage interest deduction began -- no different than buying stock on a margin.

  • bshep19||

    Actually, as a renter you are getting the shaft when you pay the property taxes through your rent. Take Michigan, for example, The city, county and schools tax residential property that is a rental at a MUCH higher rate (I have changed owner occupied dwellings to rentals and watched the property taxes go up by one third or more) than owner occupied dwellings. I guess they think that all landlords are slumlords and have much more money than they need.

    You as the renter are really paying that higher property tax rate through your monthly rent payments because all landlords bake that into the rental.

    If I can't deduct the mortgage interest (I know they are not talking about commercial property at this time "but first they came for the socialists...") then be prepared for all rents to go up. The guy who owns the place where you live is not running a charity.

  • John Galt is back||

    Actually, as a renter you are getting the shaft when you pay the property taxes through your rent.

    Virtually every cent you spend includes one or more property taxes.
    So you're getting the shaft, FORCED to subsidize Wal-Mart, Amazon, General Motors, and all the others!

  • DrZ||

    Get rid of the capital gains exclusion too! This and the interest deduction artificially inflate home prices.

  • John Galt is back||

    If the capital gains exclusion is killed (a middle-class loophole), then the interest deduction would become justified again, just as it is on all taxable capital investments.,

  • C. S. P. Schofield||

    OK, hold the goddamned phone. If you want to do away with this law because you believe it is none of the government's goddamned business to 'encourage' people to buy houses, that's cool. But leave the amount of money it 'costs' the government out of it. history have proven again and again that in times of low revenue, Congress with spend more than it has coming in, and in times of high revenue, Congress will spend more than it has coming in. Giving Congress more revenue will not result in cuts in spending. I'm no longer even sure than running the lot of those ballot-lice through a guillotine would result in cuts in spending. The best we can hope for is to hold on to as much of our money as we can, and keep trying to vote in congresscritters with some goddamned sense.

  • bshep19||

    You may be correct that "running the lot of those ballot-lice through a guillotine would result in cuts in spending" but I think we should run the experiment in a real world setting to see if your hypothesis is correct. Maybe we both would be in for a pleasant surprise?

  • Hu McCulloch||

    By all means eliminate the mortgage interest deduction, which merely promotes what I call Home Debtorship, but phase it out over 10 years to soften the blow to those who were counting on it.

  • Brian C. LeVasseur||

    Yes, the Law of Unintended Consequences cuts both ways. Having the deduction has lead to distortions, including over-inflated prices. Getting rid of it - and how quickly - would lead to a collapse of home prices.

  • Hank Phillips||

    Leave it to Nick to come up with a way to keep taxes on voters as high as possible. This merits the Magnitude of Order award for Mother Jones journalism.

  • Richard Rider||

    Deducting mortgage interest on a home loan supposedly is a key component of home ownership in America. But Canada doesn't allow home interest payments to be deductible when figuring Canadian income tax.

    Last time I checked, most Canucks have (insulated) roofs over their heads. Indeed, 67.6% of Canadians are homeowners vs. 64.5% of Americans.

    Moreover, in all but two Canadian provinces, home loans are RECOURSE loans -- if you default, the bank can come after your personal assets (unlike America where many such home mortgages are NONrecourse loans). Hence a Canadian must think carefully before committing to buying a home on credit. As a result, Canadian didn't have the housing bubble and collapse in the last decade like America experienced.

  • Mark22||

    I'm indeed pretty sure that the Mortgage Interest Deduction does not increase home ownership rates.

    Nevertheless, your reasoning is total bullshit. Get a clue, man.

  • Richard Rider||

    "Your reasoning is total bullshit. Get a clue, man."

    Really? THAT'S your rebuttal???

    Let's let your nuanced, well "reasoned" response stand as the pinnacle of thinking of those favoring the continuance of deducting home loan interest payments. You make a better case for repealing this subsidy than I could ever present.

    Thank you for playing!

  • Mark22||

    Really? THAT'S your rebuttal???

    No, it's an assessment.

    Let's let your nuanced, well "reasoned" response stand as the pinnacle of thinking of those favoring the continuance of deducting home loan interest payments.

    As I was saying, I agree that the mortgage interest deduction should be abolished, I merely pointed out that your reasoning was idiotic.

  • Mark22||

    But the real problem with the House bill is that it doesn't go far enough. We should scrap the mortgage-interest deduction altogether and let housing prices reflect real market values.

    Many people have taken the mortgage interest deduction into account in their budgeting. If you scrap it overnight, you'll see a sudden, substantial drop in home prices, with unpredictable consequences for the economy.

    The right way of handling this would be to phase it out gradually over the next ten years.

  • Could not connect to remo||

    The only reason why the mortgage deduction favors the rich is because there are no limits placed on it. I totally disagree with the author on eliminating this deduction because it's the only one that encourages the middle class to invest their money. Meanwhile, the rich have plenty of deductions that are not available to the middle class. Why not lower the cap to $250,000 on one home that is the primary residence of the homeowner? Sorry but I did not see the connection between this deduction and higher interest rates or in home values that more accurately reflect market prices.

    You could also limit the deduction like they do with medical expenses by subtracting a percentage of one's gross income. Doing this would lower the deduction for people making more money while conversely increasing the deduction for wage earners in the middle-class.

  • Mark22||

    Why not lower the cap to $250,000 on one home that is the primary residence of the homeowner?

    $250k being roughly your (expected) mortgage, I assume?

    Doing this would lower the deduction for people making more money while conversely increasing the deduction for wage earners in the middle-class.

    Because "stick it to people making more money than me" is such a libertarian position!

  • BigChiefWahoo||

    On the original Form 1040 rolled out back in 1914(and yes, it was Form 1040 right from the beginning) taxpayers could deduct any and all interest they had paid, for whatever reason.

  • Frank999||

    If the American dream is to be in debt just to have a small home with a small patch of grass, I'll pass. Mortgage interest deduction only artificially raises property values and increases national deficit. Taxpayers don't need to help rich people buy vacation homes or McMansions in expensive neighborhoods.


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