Trump weighs slashing one of the most popular tax deductions
The Trump administration is trying to figure out how to pay for tax cuts, and one of the ways it’s considering is getting rid of the mortgage-interest deduction for homeowners, Politico reports.
Unlike rent payments, the interest for a mortgage payment can be deducted from taxable income. It’s a major benefit of owning a home, and critics have pointed to it as a huge driver in American inequality.
At a White House roundtable, led by National Economic Council Director Gary Cohn, featuring people in the real estate industry, the topic came up. One attendee told Politico that the tax break was “on the table,” as the administration works on taxes, something Cohn had told Congress before.
As Matthew Desmond, author of “Evicted: Poverty and Profit in the American City,” wrote in May, it’s actually one of the main entitlement programs in the United States. “But by any fair standard,” Desmond wrote in the New York Times, “the holy trinity of United States social policy should also include the mortgage-interest deduction — an enormous benefit that has also become politically untouchable.”
Many countries like Australia, Canada, and Britain don’t have this deduction, which is ostensibly there to increase homeownership. Economists don’t think this necessarily works, however, instead simply allowing for the purchase of larger houses and benefiting the wealthy. According to the Tax Policy Center, it’s a very regressive policy, disproportionately helping boost the top 20% post-tax income.
Trump is willing to at least consider touching a politically untouchable issue
This isn’t the first time Trump has expressed a willingness to get rid of this favoritism to homeowners over renters. In April, the administration released its tax proposal, and while it indicated that it would “protect the homeownership and charitable gift tax deductions,” the proposal sought to double the standard deduction, which would effectively mute the mortgage deduction benefit for many American homeowners—except the wealthiest.
For this reason, Trump getting rid of the mortgage-interest deduction would effectively be the more populist position in comparison to the April “backdoor” version that protects it politically while rendering it useless to most people.
Despite being one of the most expensive tax breaks, costing the country—mostly the renters, who don’t get the benefit—$77 billion in 2016, Trump and Treasury Secretary Steven Mnuchin will face massive blowback should they pursue this policy. And not just from homeowners—from renters too. After all, homeownership is consistently cited as a being a part of the American Dream, a dream many renters hope to realize someday.
Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, tech, and personal finance. Follow him on Twitter @ewolffmann. Got a tip? Send it to tips@yahoo-inc.com.
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