Tax Law

Mortgage Deduction Heavily Favors Blue States

The benefits of the mortgage interest deduction are not evenly distributed among the states. As shown in the figure, the per capita tax benefit from the mortgage interest deduction for Californians is more than two and a half times that for Texans. Marylanders get nearly five times the benefit of citizens in neighboring West Virginia.

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Beyond... fundamental tax reform, most proposals relating to the mortgage interest deduction have been targeted at upper-income households. Given the enormous political contributions, lobbying expenditures, and grass-roots networks of the National Association of Realtors, the National Association of Home Builders, and the Mortgage Bankers Association, a limited repeal is the only realistic possibility...

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In addition to the wide disparity in benefits, the other striking feature about the mortgage interest deduction is how well the subsidy correlates with Democratic strength. In the figure, the six states with the highest per capita benefit were states captured by Obama in the 2008 election. In the six states with the lowest per capita benefits, Republican challenger John McCain won the vote.

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As tax reform moves forward, we can expect Democratic senators to be the most lukewarm to proposals for limiting the mortgage interest deduction to less expensive homes. And if it is a choice between cutting the mortgage interest deduction and cutting tax subsidies for energy companies, that will be an easy decision for the senators from Oklahoma.

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View TaxAnalysts' Martin Sullivan's opinion in its entirety on TAX.com.

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