You've read about what
The Tax Foundation's economic model finds that after the effects of wiping out the mortgage deduction are fully phased in, the economy would shrink by $254 billion. In addition, the model shows the country would lose 659,000 jobs, and wages would be 1.1% lower.
And even though some say the ending the write-off will generate $101 billion in additional federal revenue, the Tax Foundation says a more "dynamic" estimate taking into account long-term economic interactions would result in a much smaller actual revenue increase of just $39 billion.
The Tax Foundation has been monitoring fiscal policy at the federal, state and local levels since 1937.
"The mortgage interest deduction is a controversial provision and there are legitimate policy arguments beyond just its impact on revenue for whether it should be retained or eliminated," said Tax Foundation fellow Michael Schuyler. "For the purposes of our estimate, however, we've set aside questions of encouraging homeownership or unequal investment treatment and focused on the impacts on economic growth."
Although eliminating the deduction would have a substantial economic impact, the Tax Foundation suggests the damage could be mitigated by pairing it with tax cuts that would stimulate investment and growth.
If the additional revenue were used to finance an across-the-board income tax cut of 6.8% and allow small businesses to immediately write off the cost of new equipment, for example, the research group says the economy would grow by an additional $50 billion, overall federal revenue would increase by a modest $8 billion and an additional 255,000 jobs would be created.
"The mortgage interest deduction is a dramatic reminder that as complex as the tax code is, simply eliminating major provisions is not necessarily the best solution," said Scott Hodge, the Tax Foundation's president. "The goal of tax reform is greater economic growth and prosperity for all Americans, and every proposed change should be focused on that goal."
Meanwhile, the report has already caught the attention of the National Association of Home Builders, which says it "should give policymakers pause" about using the write-off as a way to pay for tax reform. The NAHB has been steadfast in its defense of the deduction, as has the National Association of Realtors and other housing groups.
In a blog post, NAHB economist Robert Dietz says the study's findings are consistent with his group's, specifically that reform proposal have failed to account for the behavioral effects of their revenue estimates. "On a static basis, the potential revenue that could be raised from MID repeal is much smaller than many tax analysts believe," Dietz said.
The Tax Foundation model predicts that ending the deduction would push some people into higher tax brackets, and the people affected would respond to the higher marginal tax rates by working and investing less. In addition, the higher cost of homeownership would somewhat reduce the value of the owner-occupied housing stock, either through lower home prices or the building of smaller housing units over time.
NAHB has estimated that every 1% decline in housing prices lowers aggregate household wealth by more than $180 billion. Thus, only a 6% price drop, which the NAHB says is well within the range previous research estimates of house price declines produced by MID repeal, would eliminate at least $1 trillion in household net worth.
Lew Sichelman is an independent journalist who has been covering the housing and mortgage markets for more than 40 years.
