Costly, Regressive, and Ineffective: How Sensitive Is Public Support for the Mortgage Interest Deduction in the United States?

ABSTRACT

Although the mortgage interest deduction enjoys broad public support, critics argue that the policy disproportionately benefits wealthy households, fails to expand homeownership opportunities to households on the margins, and costs the federal government an extraordinary amount of money in foregone tax revenue. Drawing on data collected through an online experiment, this analysis tests the sensitivity of public support to these critiques. The findings reveal that support for the mortgage interest deduction declines when respondents are presented with information about the cost, effectiveness, or distribution of benefits associated with the deduction. Support among renters is more sensitive to framing effects than that among homeowners. Republicans are less sensitive to framing effects than Democrats when the deduction is framed as distributing benefits unequally, but more sensitive to these effects when the issue is framed as costly. However, all groups register their lowest level of support when told that the mortgage interest deduction is not an effective tool for expanding ownership opportunities.

KEYWORDS:

• homeownership
• tax policy
• mortgage interest deduction
• framing effects

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

1. Under the Tax Cuts and Jobs Act passed by Congress in 2017, the limit on deductible mortgage debt fell to $750,000 on loans taken out after December 14, 2017. However, existing mortgage loans were unaffected by this change.

2. Alongside the MID, the Department of the Treasury lists three other tax expenditures for homeowners—the exclusion of net imputed rental income, the capital gains exclusion on home sales, and the deductibility of state and local property taxes on owner-occupied homes—among the costliest in the tax code.

3. For additional information on the cost of the mortgage interest deduction and other federal tax expenditures, see reports by the Tax Policy Center (http://www.taxpolicycenter.org/briefing-book/what-are-largest-tax-expenditures) and the Joint Committee on Taxation (https://www.jct.gov/publications.html?func=startdown&id=4857).

4. For additional information on the Amazon Mechanical Turk platform, visit http://www.mturk.com.

5. In addition to the measures listed in Table 1, survey respondents were asked a series of questions about their interest in public policy, their general support for policies that support homeownership, and their level of political partisanship. These were included in the survey immediately after the question about the MID, but before the demographic information.

6. In separate regression analyses predicting support for the mortgage interest deduction, I confirm that homeowners, high-income households and older Americans are all more likely to support the deduction. These findings are available from the author upon request.

Additional information

Notes on contributors

Brian J. McCabe

Brian J. McCabe is an associate professor of sociology at Georgetown University and an affiliated faculty member in the McCourt School of Public Policy. His research on housing, homeownership, and historic preservation has been published in the Journal of the American Planning Association, the Journal of Urban Economics, the Journal of Urban Affairs, and the Urban Affairs Review. His first book, No Place Like Home: Wealth, Community and the Politics of Homeownership, was published in 2016.