Home inequity: one of the biggest entitlement programs is not for the poor

Common Cause Magazine, Summer, 1994 by Vicki Kemper

Eventually, as part of the tax overhaul led by President Reagan, Sen. Bill Bradley (D-N.J.) and Rep. Richard Gephardt (D-Mo.), Congress did modify the deduction, limiting it to two houses and capping the eligible mortgage principal at $1 million. Ironically, while those limits made the deduction slightly less valuable to the ultra-rich, the same tax reform package reduced the deduction's value to the middle class: Congress raised the standard deduction, so fewer middle-class taxpayers itemize their tax returns. Statistics from the Joint Committee on Taxation show that only 17.6 percent of taxpayers with annual incomes of up to $75,000 took the mortgage deduction on their latest tax returns, along with only 13.8 percent of households with taxable incomes between $20,000 and $40,000.

President Bush stayed the course on the deduction while overseeing the continued erosion of federal housing programs for the poor. Housing activists Peter Dreier and John Atlas calculate that the cost of homeowner deductions more than doubled from 1980 to 1991 while the federal budget for low-income housing was slashed by roughly 70 percent, more than any other domestic program. In 1990 Bush signed the National Affordable Housing Act, but a key provision designed to help first-time homebuyers has yet to be funded.

In every Congress since 1989 Rep. Marge Roukema (R-N.J.), has sponsored a non-binding "sense of the Congress" resolution that mortgage interest deductions for first and second homes "should not be further restricted." More than 100 House members have "taken the pledge."

In the 1992 presidential campaign, George Bush and Bill Clinton tried to outdo one another in pledging their allegiance to the mortgage deduction (and by extension the housing industry), while independent candidate Ross Perot proposed capping the deduction at $250,000 in mortgage principal and eliminating the deduction for second homes. Since occupying the White House President Clinton has indicated he has "no plans to change" the deduction, says Marc Weiss, a real estate historian who served as Clinton's housing policy adviser during the campaign and now is special assistant to Housing Secretary Henry Cisneros.

ALTERNATIVE FINANCING

While housing activists have long advocated some change in the mortgage deduction that would make it more equitable and also free up more housing funds for the poor, today's impetus for change is coming from individuals and groups concerned about the budget deficit.

The Concord Coalition, an anti-deficit group headed by two former senators, largely follows the deficit-reduction options outlined by the Congressional Budget Office, calling for a mortgage deduction limited to $12,000 in interest a year for single taxpayers and $20,000 for couples. Former Commerce secretary Peter Peterson, who calls the mortgage deduction a "costly and regressive entitlement" that "steers scarce U.S. capital away from improving the equipment in our factories and toward home improvements in the suburbs," would limit the deduction to $250,000 in mortgage principal for a couple. Savings from these proposals could total more than $7 billion annually by the year 2000, proponents say.