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Tuesday, April 9, 2013 01:15 pm

Faulty deductions

It’s tax time, and the hunt for deductions is on. Back in 2009, I griped about the folly of the federal tax subsidy to home owners in my column, “Just extra money.” The deduction for home mortgage interest favors families spending more money on more house, because the more they pay in interest, the more they reduce their taxable income. According to a report from the Center for Budget Policies and Priorities,families with incomes over $75,000 receive 88 percent of the benefits from the home mortgage deduction.

Families in that income bracket can usually afford a home without assistance. Because families who make less money -- and who often struggle to keep up with house loan payments -- don’t pay more in interest than the standard deduction, they don't even claim a separate deduction for interest, and thus get no help from a tax break supposedly intended to help them realize the American Dream of becoming a property speculator.

In sum, as presently structured, the deduction gives the most help to people who don't need it so they can buy more house than most of them use. A better idea is to simply let people deduct a percentage of their interest as a credit against taxes owed. That way the owners of modest houses get the same break as the owners of mini-mansions. Until this or similar reforms are adopted, the MID will remain bad law, bad policy and bad finance – which, I guess, explains why it has so many supporters.

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