The GOP Targets America’s Most Loved and Hated Tax Break

If there is one part of the tax code that is almost universally excoriated by economists, it is the mortgage interest deduction. Emerging from a 1913 provision that allowed business owners like farmers to deduct any interest they paid on business expenses, the mortgage interest deduction now lets people who buy homes deduct part of the cost of their mortgage on their taxes. According to the Joint Committee on Taxation, it saved Americans $77 billion last year—$77 billion that would otherwise have gone to the government. Liberal groups have long targeted the deduction, arguing that it disproportionately benefits white and wealthy homeowners while leaving out people who don’t own homes, or who don’t itemize their taxes, and who thus can’t take the deduction.

So it seemed initially surprising released by Republicans on Thursday proposed capping the mortgage interest deduction, which has long been off-limits in American politics. The plan would cap the size of a mortgage on which people can deduct their interest at $500,000, down from the current level of $1 million. (Existing mortgages will be grandfathered in and those homeowners will be able to continue to receive the current deduction.) “This sounds like it would be at least a small gesture in the right direction,” Alan Mallach, a senior fellow at the nonprofit Center for Community Progress who has advocated for phasing out the mortgage interest deduction, told me.