Mortgage Interest Deduction and the Economy

Well, the federal government's bi-partisan Deficit Commission's report is coming in.  Close to the top of the list of proposals is a suggestion to eliminate (or at least limit) the mortgage interest deduction (MID) available to homeowners.  For those who are not familiar with it, the MID is a great benefit helping people looking to own a little bit of God's green earth.  We've discussed in the past some of the benefits of homeownership, not only to the individual, but to the community at large.  One of those benefits is the ability of homeowners to deduct the amount of interest paid on their mortgage from their income for income tax purposes.  simply put (in the interest of full disclosure - I'm no tax expert!), if one earns $60,000 and is in a twenty-percent tax bracket and pays $10,000 in mortgage interest, $2,000 less tax is paid.  That's $2,000 that can be spent on other things - food, utilities, home improvement - whatever.  That spending injects much-needed revenue into the economy, which in the long term will create even more tax revenue.

Unfortunately, the government's view is not only myopic, it's misguided.  Limiting or eliminating the MID will not only  hurt those who currently own their homes, but put a damper on those who are considering buying. 

It's estimated that every home sold injects around $50,000 into the economy.  Right up front the Realtor(R) gets paid; the loan officer and attorneys get paid; and the insurance agent gets paid.  The new buyer wants to have work done on the home and hires a contractor (who gets paid), goes to Home Depot or Lowes for supplies; buys new curtains, drapes, and furniture; and hires a mover.  At the very least he or she rents a truck and has family and friends help move.  Pizza and beer are ordered for all.  All these companies (employing people) are not only getting paid, they pay taxes.  Home sales truly are at the forefront of any economic recovery.  Playing with anything that may put a damper on that is not only bad economic policy, it's foolishness to the nth degree.  Let me know what you think.