Who Really Benefits from the MID
By: NAR Chief Economist Lawrence Yun
It’s a common misperception that the mortgage interest deduction
benefits primarily the wealthy, as argued in the Washington Post’s
January 1 editorial, “Trim the Excessive Tax Subsidy for Real Estate.”
In fact, the MID actually benefits primarily middle- and lower income
families. Sixty five percent of families who claim the MID earn less
than $100,000 per year, and 91 percent who claim the benefit earn less
than $200,000 per year. As a percentage of income, the biggest MID
beneficiaries are younger middle-class families.
The MID helps many families become home owners by reducing the
carrying costs of owning a home. The ability to deduct the interest paid
on a mortgage can mean significant savings at tax time. For example, a
family who bought a home last year with a $200,000, 30-year, fixed-rate
mortgage, assuming an interest rate of 5 percent, could save nearly
$3,500 in federal taxes when they file next year. That’s real money they
can use to pay down other debts, save for their children’s college
education, or put away for retirement.
It’s no wonder, then, that most Americans support the MID. In fact,
in a recent NAR survey by Harris Interactive of 3,000 home owners and
renters, nearly three-fourths of home owners and two-thirds of renters
said the MID was extremely or very important to them.
Unlike the very rich, much of whose wealth is tied to the stock
market, the wealth of most middle-class American families is connected
to their home. Millions of these Americans bought their homes with the
understanding that mortgage interest is tax-deductible, and many of them
have steadily paid down their mortgages to build equity in their home.
Eliminating or reducing the MID would destroy part of this hard-earned
equity for all home owners, independent of their tax filing status.
Furthermore, we also need to be mindful that home owners already pay
80 percent to 90 percent of U.S. federal income tax, and this share
could rise to 95 percent if the MID is eliminated. Proposals that would
remove certain tax benefits in return for lower tax rates just may hold
for one or two terms of Congress before the tax rates are changed again.
Americans are not naïve; they understand the nature of Washington
politics.
For people who don’t have hundreds of thousands of dollars in savings
to buy a home outright, tax benefits like the MID help them begin
building their futures through home ownership. In a time when the middle
class faces increased economic pressures, you can be sure that the
National Association of Realtors® will remain actively engaged to ensure
that hard-working, home-owning families continue to receive this
important benefit.
Learn more about buying a home at www.Realtor.com or contact one of our agents for a one-to-one question and answer no-obligation session.