Brownback's right: Kill the home mortgage interest deduction
The Kansas City Star
Gov. Sam Brownback wants to raise taxes on Kansas homeowners by killing the home mortgage interest deduction for hundreds of thousands of Kansans.
And it’s the right approach to tax reform, despite what Realtors say.
The governor is desperately trying to find ways to increase public revenues after he and the Legislature last year slashed state income taxes. That’s going to force the state to use most or all of its reserves to pay for basic services in the coming fiscal year.
So Brownback has zeroed in on a deduction that would, at first glance, appear to be sacrosanct because it encourages peoples to buy houses. And isn’t that the American dream?
Yet the governor and his supporters are right: The deduction favors the wealthy and upper-income residents who buy large, expensive houses. Then they take the home mortgage deduction, essentially reducing tax revenues for the state.
The Kansas Association of Realtors says Brownback’s plan would hurt the housing industry at a time it’s still trying to crawl out of the Great Recession.
Yet the evidence to prove that point is flimsy, especially for moderately priced houses.
Kansas figures show the average tax break from the home mortgage deduction for homeowners is under $400 a year. That’s better than nothing, but hardly enough to really attract someone to make a purchase of, say, $150,000 or more.
Plus, only about one in five Kansas tax filers takes the interest deduction.
And again, remember that this average tax break is inflated by the much larger savings that wealthy homeowners get for buying houses of $500,000 or more.
The home mortgage deduction does something else that hurts Americans: It artificially boosts the prices of housing. Realtors sell the tax break when showing houses. Their pitch: Sure the house is expensive, but think of all the money you will “save” when you get the tax break from the government.
At least in Kansas, that deduction needs to go away. People will still be able to take the federal home mortgage deduction - unless, as is being proposed by some forces, that deduction goes away too.