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The False Messiah of Tax Policy: What Elimination of the Home Mortgage Interest Deduction Promises and a Careful Look at What It Delivers

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  • James Follain
  • Lisa Sturman Melamed

Abstract

This article explores the potential effects of eliminating the home mortgage interest deduction. Estimates of the tax expenditures generated by the home mortgage deduction usually exceed $40 billion, which give the impression that much additional tax revenue can be obtained by eliminating it. We argue otherwise. Many households, especially wealthy households, would change the way they finance their homes if the mortgage interest deduction were eliminated; they would rely less on mortgage debt and more on their own assets.Roughly $10 billion in additional tax revenue is generated by eliminating the mortgage interest deduction when such portfolio reshuffling is taken into account. Those hardest hit would be younger, upper-middle-income households. Wealthy households, low-income households, and many elderly households would be less affected.

Suggested Citation

  • James Follain & Lisa Sturman Melamed, 1998. "The False Messiah of Tax Policy: What Elimination of the Home Mortgage Interest Deduction Promises and a Careful Look at What It Delivers," Journal of Housing Research, Taylor & Francis Journals, vol. 9(2), pages 179-199, January.
    • Handle: RePEc:taf:rjrhxx:v:9:y:1998:i:2:p:179-199
    DOI: 10.1080/10835547.1998.12091938
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