I always look forward to my tax refund this time of year. Thanks to our mortgage and student loans, my partner and I receive a decent refund that we use to pay down student debt or perhaps enjoy a vacation.
Homeowners enjoy the benefit of our nation’s largest housing assistance program: the mortgage interest tax deduction. Taxpayers may deduct the interest they pay on their mortgages for their first and second homes, up to a principal mortgage amount of $1 million. Both the federal government and Minnesota allow this deduction on residents’ income taxes. In our state, this amounts to $330 million each year that the state allows in tax-writeoffs.
We usually think of this as benefiting the middle class, but 78 percent of the deductions go to households with incomes over $100,000, with 35 percent of it benefiting those earning over $200,000. Those with the most expensive homes get to deduct the most. Many people in lower tax brackets don’t even benefit from itemizing their deductions. And we’re not just talking about modest primary residences here. A “home” may include an RV, yacht, or cabin, not just someone’s first home. In addition, the same deduction applies to up to $100,000 of a home equity loan used for non-housing expenses, giving homeowners a tax break on their debt that renters cannot access.
Despite all of this, many homeowners would claim that they have never benefited from a government assistance program… but we have. In fact, we get the bulk of housing assistance. Again, Minnesota spends $330 million on this tax break. We spend only $28 million on supportive services and housing for those at risk of homelessness. We spend just $350,000 on shelter for those who have lost everything.
We need to have a conversation about these spending priorities. I do recognize that home values are driven partly by this tax break, which is important to homeowners like me. I’m not proposing that we get rid of the mortgage interest deduction altogether. But what if we moderated the benefit, perhaps by lowering the eligible principal amount down from $1 million, capping the refund that high-income households receive, or eliminating tax breaks for RVs and cabins?
What if we spent our state’s money on those with no home, rather than on our vacation homes?