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August 7, 2011

Study: Time to Eliminate the Mortgage Interest Deduction

Removing homeowner subsidies would allow everyone�s income tax rates to be lowered

The mortgage interest deduction does not increase homeownership rates and amounts to little more than a subsidy for wealthy homeowners, according to a new Reason Foundation study that recommends eliminating the deduction and streamlining the tax code. The Reason Foundation report suggests a revenue-neutral solution: eliminate the mortgage interest deduction and lower federal income tax rates for all Americans by 8 percent.

"The mortgage interest deduction subsidizes and rewards wealthy people for buying expensive houses they would've purchased anyway," said Anthony Randazzo, director of economic research at Reason Foundation and co-author of the report. "The deduction is used almost exclusively by people in the top income brackets with large mortgages. Renters, along with lower- and middle-class families, are getting a raw deal. Taxpayers and the economy would be best served by ditching the mortgage deduction and lowering overall tax rates."

The mortgage interest deduction was used on about a quarter of all tax returns filed in 2009. But the Reason Foundation report shows the home mortgage deduction was used on 73 percent of tax returns filed by those with incomes over $200,000 that year. The average tax savings for those homeowners: $2,221. In contrast, just 5.5 percent of tax returns filed by those making $20,000 to $30,000 used the mortgage interest deduction in 2009, with no significant tax savings. Thirteen percent of tax filers making between $30,000 and $40,000 used the mortgage deduction. Their tax savings was a paltry $96. And 23 percent of tax returns with incomes between $40,000 and $50,000 used the mortgage interest deduction, with an average tax savings of just $114.

FAA Shutdown And Our Air Traffic Control Funding System Are Absurd

Robert Poole

The situation is absurd. Not a single one of the numerous issues holding up the FAA bill concerns air traffic control. The latest stumbling block was over how small the cutback would be in the subsidy program for airline service to small towns. Another major sticking point is the House�s effort to overturn a recent change in policy on airline unionization by the National Mediation Board. There have been battles over foreign aircraft repair stations, FedEx workers, slots at Reagan National Airport, and many other issues. Yet not one of those contentious issues has anything to do with air traffic control, which is about 80 percent of FAA�s budget. Isn�t there a better way to fund air traffic control modernization? Any business faced with a $20 billion modernization agenda would finance the investment, probably issuing long-term bonds to be paid off from future sales revenue. But as a government agency, the FAA is stuck with annual appropriations, of uncertain timing�and now, a hiatus in the whole program. Among all serious developed countries, the United States is the only one left that funds air traffic control this way. Australia, New Zealand, Canada, Germany, the U.K., Switzerland, and dozens of other countries have all de-politicized their air traffic control systems, by �commercializing� their air traffic control providers�turning them into separate corporate entities that are self-funding, getting paid by their aviation customers. That revenue stream is predictable enough that the company can issue revenue bonds to fund capital investments in facilities and equipment.