want to subsidize the wealthy? keep the home mortgage interest deduction

This came up in a thread on Facebook.

I knew the logic behind it: One has to itemize deductions to get the subsidy-- and then the gain is only the amount of the itemized deduction over the standard deduction. In 2009, the standard deduction for married couples was $11,400. So, unless your mortgage interest and other deductions (most notably, charitable contributions, state/local and property taxes) exceed that amount, the mortgage interest does not reduce your taxable income. And if you have mortgage interest of $5,000 but total deductions of $12,000, then you only get $600 over the $11,400.

From there, you multiply by the relevant marginal tax rate (MTR). Both the itemized deduction and the MTR typically increase with income, so it follows that the wealthier should be expected to benefit (greatly) from a policy that will do little for the middle class and nothing for the poor.

Someone pressed me for numbers, so I dug this up from the Urban Institute...

The annual benefit of the home mortgage interest deduction: $2,639 for the top quintile ($4466 from the top 5%) vs. $215 for the middle quintile vs. $2 for the lowest.

Who could love a policy like that?