Recently, Gary Cohn, the chief economic adviser to President Trump, heralded his bosss first tax plan as a once-in-a-generation opportunity to do something really big. And indeed, Trumps plan represents a radical transformation in how we will fund the government, with its biggest winners being corporations and wealthy families. But no one in his administration, and only a small (albeit growing) group of people in either party, is pushing to reform what may very well be the most regressive piece of social policy in America. Perhaps thats because the mortgage-interest deduction overwhelmingly benefits the sorts of upper-middle-class voters who make up the donor base of both parties and who generally fail to acknowledge themselves to be beneficiaries of federal largess. Today, as in the past, writes the historian Molly Michelmore in her book Tax and Spend, most of the recipients of federal aid are not the suspect welfare queens of the popular imagination but rather middle-class homeowners, salaried professionals and retirees. A 15-story public housing tower and a mortgaged suburban home are both government-subsidized, but only one looks (and feels) that way. It is only by recognizing this fact that we can begin to understand why there is so much poverty in the United States today.
When we think of entitlement programs, Social Security and Medicare immediately come to mind. But by any fair standard, the holy trinity of United States social policy should also include the mortgage-interest deduction an enormous benefit that has also become politically untouchable.
The MID came into being in 1913, not to spur homeownership but simply as part of a general policy allowing businesses to deduct interest payments from loans. At that time, most Americans didnt own their homes and only the rich paid income tax, so the effects of the mortgage deduction on the nations tax proceeds were fairly trivial. That began to change in the second half of the 20th century, though, because of two huge transformations in American life. First, income tax was converted from an elite tax to a mass tax: In 1932, the Bureau of Internal Revenue (precursor to the I.R.S.) processed fewer than two million individual tax returns, but 11 years later, it processed over 40 million. At the same time, the federal government began subsidizing homeownership through large-scale initiatives like the G.I. Bill and mortgage insurance. Homeownership grew rapidly in the postwar period, and so did the MID.
