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MID Cuts: Hobbesian Choice for Localities

By Robert Freedman, Senior Editor, REALTOR® Magazine

Some lawmakers like to call the mortgage interest deduction (MID) a tax break for higher-income households but the vast majority of households that take the deduction are middle-income families, earning either less than $100,000 a year or between $100,000 and $200,000 a year (the typical cut-off point between wealthy and non-wealthy households).

Younger households are also among the biggest beneficiaries, because such a small part of their monthly payment goes to principle. Other big users are larger households—those that need bigger houses to accommodate everyone in their family.

These are a few findings from NAR Research into who would be impacted the most should President Obama propose and Congress pass cuts to MID. You’ve probably already heard these and similar stats — like the across-the-board 15-percent decline in home values should MID go away.

But the numbers have some interesting consequences. That 15-percent value drop, for example, isn’t just bad for home owners. It’s a fiscal disaster for local governments. As the value of homes in their jurisdictions sink, the localities’ property tax collections will also shrink. And to make up the gap, they’ll have to either raise taxes or cut services. It’s a classic example of a Hobbesian choice.

The video above, with NAR Economist Danielle Hale, looks at the impact of MID curbs. You can get additional insights, along with some compelling charts and graphs, from a presentation Hale has put together.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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