Only Rich People Benefit From The Home Interest Mortgage Deduction

versace mansion

Photo: Douglas Elliman

Harvard economist Edward Glaeser sees a lot of problems with the government’s home mortgage policies in that they’re pushing American families out of energy-efficient cities and into the suburbs, where the cost of living is higher and it’s harder to save money.Now in his new paper, he argues the only people benefiting from the home mortgage interest deduction are the richest Americans. Citing a 2008 study, he notes that families who earn between $40,000 and $75,000 only save $523/year whereas those in the $250,000 and up club are pocketing a whopping $5,459/year. 

“From a purely economic perspective, the regressive nature of the tax deduction may be problematic because it suggests that the deduction is poorly targeted,” he says. “From a narrow economic perspective, the fact that the benefit goes disproportionately toward more prosperous individuals raises doubts about whether it effectively encourages homeownership.” 

The home mortgage interest deduction also does little to help the middle class. Returning to the 2008 paper, Glaeser says that most middle-income homeowners don’t even bother to itemize their annual tax returns, which tips the scales in wealthy Americans’ favour and helps them reap more benefits. 

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