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Subsidizing the Donor Class

March 8, 2011 - by Donny Shaw

Yesterday I wrote about a bill scheduled for a vote this week that would eliminate a program that provides bridge loans to unemployed homeowners to help them avoid foreclosure. The program has $1 billion in total lending authority, and homeowners are required to pay the government back when they become employed again. House Republicans say they’re going after the program a matter of fiscal responsibility. But here’s the thing — at the same time that they’re trying to cut $1 billion in loans for the unemployed, they’re fighting to protect a more than $100 billion program that provides tax breaks to homeowners, with benefits flowing overwhelmingly and disproportionately to the wealthy.

The mortgage interest deduction is the single largest housing program in the U.S. According to the Joint Committee on Taxation, in 2010 the program provided $104 billion in tax break to homeowners, with more than half of the benefits going to the 10% of taxpayers who earn more than $100,000 per year. This is because, among other reasons, it’s designed as a deduction, so, for example, homeowners in the 35% bracket pay an after-tax cost of $65 on each $100 borrowed while those in the 10% bracket pay $90 per $100. Currently, homeowners can get this deduction on mortgages worth up to $1 million on both primary and secondary homes.

The Bowles-Simpson deficit commission and many tax experts from across the political spectrum have suggested repealing or reforming this program as part of their deficit-leveling recommendations. But Congress seems extremely uninterested in touching it, even in just making it more fair by lowering the mortgage cap to $500,000, removing eligibility for second homes, or leveling out its benefits for all income earners.

Case in point: H.Res.25, a bill “expressing the sense of the Congress that the current Federal income tax deduction for interest paid on debt secured by a first or second home should not be further restricted.” This bill has been steadily gaining co-sponsors, and it’s a remarkably mixed bunch. Of the 52 co-sponsors, 47% are Democrats. That level of bipartisanship is virtually unheard of for anything in Congress more significant than naming post offices or honoring sports teams.

To understand what’s going on here, consider that the main sponsor for the proposal, Rep. Gary Miller [R, CA-42], represents some of the ritziest neighborhoods of Orange County. Miller’s district has a median income of nearly twice the national average. These are the people who benefit disproportionately from the deduction, and across all congressional districts the people benefiting disproportionately from the deduction are the ones who have money to donate to their members of Congress. The unemployed, on the other had, don’t have money to spend on politics, and that’s probably part of the reason why Congress is moving to eliminate $1 billion in aid for unemployed homeowners but protect $104 billion for primarily the wealthy.

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  • audiosteve 03/08/2011 8:11am

    People make expensive and long term financial decisions based on home mortgage tax deductions. To change that would not just affect the ‘wealthy’, as this article implies, but would have a significant impact on all homeowners with a mortgage. It is not fair to make significant changes to the rules in the middle of the game. Not fair at all. It would financially ruin many people, myself included. If we want to consider notions of ‘fairness’ then let’s consider this aspect as well. What do you say we have the top few percent start paying their fair share of income taxes before we start considering raising taxes on all home mortgage holders ? I thought home ownership was part of the American dream. Is this just another step to insure that our collective dreams continue to become more and more unobtainable ?

  • Comm_reply
    hondapcgirl 03/08/2011 8:29am

    I’m confused….you think the “top few percent” should start paying more income taxes because they already pay 71% of the tax bill? But they should pay more? I just don’t understand this logic at all. Homeownership is not part of the American Dream. The American Dream is to succeed in whatever way success looks to you. Maybe you’re a stay at home mom and success is having your children grow up to be good people. Maybe you’re a car fanatic and your dream is to work on really cool cars for people. Homeownership only comes in if that is your choice to work hard and make it happen. ALL tax “breaks” need to be abolished and we need to go to a fair tax system, so that special interests have no pull in Washington, because they have no tax breaks to ask for.

  • audiosteve 03/08/2011 1:37pm

    @hondapcgirl: Yes, The rich should pay more in taxes. They pay 71% of our taxes because they take a shameless proportion of all income, unseen in its disparity since before the crash of ’29. Taxes now paid, as a percentage of wealthy income, are at the lowest level in close to 50 years. 71% is an indictment of the gulf between the rich and everyone else, not a confirmation of any civic duty fulfilled. The rich take more than is healthy for a properly functioning democracy and pay less as a percentage of that income than they should. We have a greed problem with a congress complicit in the looting of our nation through tax and other policies enacted for the benefit of the monied class that provide campaign contributions. We have become a completely undemocratic plutocracy and talk of removing one of the great enablers of the American dream, the home mortgage deduction, in order to help finance the looting is just more evidence of how dysfunctional and unfair our government has become.

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    nmeagent 03/09/2011 8:44pm

    because they earn a shameless proportion of all income

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    nmeagent 03/09/2011 8:45pm

    okay, failed post again…this is getting ridiculous. I give up.

  • fakk2 03/09/2011 4:07pm


    Wait a second, we’re talking about those whom make over $100k a year individually, right? We’re talking about lawyers, doctors, accountants, stockbrokers, city/county/state officials, school district employees, mayors, fed gov’t officials, fire chiefs, supervisors, and small business owners to name a few.

    When I hear “they take a shameless proportion of all income”, I am wondering how being wealthy, and having the drive/determination to become wealthy is bad.

    Also, the phrase “The rich take more than is healthy for a properly functioning democracy and pay less as a percentage of that income than they should” makes me think a couple of things I’m kinda interested in the answer to. First, how much money is a healthy amount to take? Secondly, why do we want a pure democracy when we know democracies don’t work? Third, who decides how much someone can have? Fourth, isn’t this statement describing socialism more than democracy?

  • Spam Comment

  • Abaratarrr 03/09/2011 8:15pm

    (ii) Limitation The aggregate amount treated as home equity indebtedness for any period shall not exceed $100,000 ($50,000 in the case of a separate return by a married individual).

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    Abaratarrr 03/09/2011 8:27pm

    It is hard to see the mortgage interest deduction as something aimed at the rich when the intrerest deduction is so low, 1,000,000 for acquisition interest dept and 100k for euqity dept, the average price of a home is 260K, i would call this a middle class tax break.

    Now I do not think the government should subsidize housing period but it is a safe bet that more middle class/poor families then rich families take advantage of this deduction.

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    Abaratarrr 03/09/2011 8:36pm

    with more than half of the benefits going to the 10% of taxpayers who earn more than $100,000 per year

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    Abaratarrr 03/09/2011 8:38pm

    A household consisting of a school teacher and a police officer make of 100K a year, is that whom you describe as the “donor class”?

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    Abaratarrr 03/09/2011 8:55pm

    something that you leave out is that the majority of the recipients of these deductions make less then 100K per year, getting rid of this deduction would hurt more poor/middle class people then rich people.

    Has opencongress recently received a large donation from George Soros? The commentary on this site is starting to bear a striking resemblance to commentary on

  • Comm_reply
    fakk2 03/10/2011 4:54am


    Thankfully this site is nowhere near as biased and 1-sided as I checked out that site and…..let’s just say I have a new appreciation for mental health professionals now.

    *Side note, in the essence of fairness, since this site is a “non-profit, non-partisan resource”, it would be interesting to see the financials including a list of all donors and how much is given and what time frame it is given in. I don’t know non-profits that well, so maybe it’s available. But it’d be a great gesture of openness to have a link on the homepage pointing to the financials, updated at least once a year or every six months or something.

  • nmeagent 03/09/2011 8:33pm

    at the same time that they’re trying to cut $1 billion in loans for the unemployed, they’re fighting to protect a more than $100 billion program that provides tax breaks to homeowners, with benefits flowing overwhelmingly and disproportionately to the wealthy.

  • Comm_reply
    nmeagent 03/09/2011 8:38pm

    Okay, this is the third time I’ve tried to comment and have formatting preserved. Whatever recent changes have been made to the posting mechanism are aggravating and I’m not going to bother whitelisting half a dozen strange domains in NoScript just to post here in the future.

    Yes, many Republicans are hypocrites. Let’s cut this program too.


  • Bodrie 04/13/2011 11:57am

    Let face it, the Tax Code is a form of social architecture. It is designed to encourage the citizens to act a certain way or, in some cases, promote certain businesses. In this case, the mortgage interest deduction is designed to encourage Americans to purchase their home, recognizing that home ownership is one thing that will strengthen the financial well being of Americans. It gives a tax break to those people who cannot afford to pay cash for home, who must obtain a mortgage loan for the purchase.

    Now is not the time to take away the mortgage interest deduction for anyone, whether in the top 2% or not. The Real Estate industry is still struggling to recover from the mortgage finance debacle. Some families rely on the deduction be able to afford their home. We don’t need more homes to be foreclosed upon.


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