NCPA - National Center for Policy Analysis


January 22, 1996

Opponents of the various flat tax proposals now being floated in GOP circles contend that the present tax deductibility of interest on home mortgage loans (a) is so popular that it would have to remain as a loophole in the flat tax, or (b) would doom prospects for a flat tax. Further, they claim the deduction encourages homeownership and offers relief to hard-pressed workers.

However, recent studies indicate that worries about removing the deduction are over-blown.

  • Only 8 percent of new homeowners recently polled cited the tax break as a reason for purchasing their homes.
  • Australia and Israel have no tax deductibility for mortgage interest, yet have higher home ownership rates than does the United States.
  • The Netherlands and France have lower ownership rates than the U.S. -- and heftier deductions.
  • In the U.S., only 6.2 percent of households earning $10,000 to $20,000 claimed the deduction in 1992, compared to 78.1 percent of filers who declared more than $100,000 of taxable income -- evidence that the deduction is regressive.

So the deduction does not, as supporters often claim, encourage homeownership and it benefits the more wealthy among us at the expense of wage earners lower on the economic scale.

If Congress retains this loophole, it will have to recoup foregone revenue by raising tax rates on everybody.

Source: Tony Snow, "End Mortgage Deduction," USA Today, January 22, 1996.


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