Affordable Housing, Community Development, Housing Policy Briefs, Reports and Publications

How High-Income Earners Benefit from MID

Apartment List
 

A report published by Apartment List in October compared federal expenditure on the Mortgage Interest Deduction (MID) and Section 8 rental assistance programs. 

Based on the structure of the United States tax system, high-income homeowners are disproportionately advantaged by this deduction. MID allows homeowners to deduct mortgage interest on their first and second homes. In order to claim the deduction, the homeowner must itemize their deductions. Since most taxpayers do not itemize their deductions unless they make large enough incomes to justify the itemization, MID results in large tax breaks for wealthier households.

Section 8 is a voucher system, whereby recipients pay a percentage of their income toward rental housing in the private market, and the voucher covers the rest. Vouchers may be “tenant-based” – where the recipient finds their own unit and rents in the private market, or “project-based” – where the recipient rents a unit in a specific development. 

The report makes several findings. First, federal expenditures are disproportionately skewed towards homeowners, and especially high-income homeowners. The federal expenditure in 2015 on the MID was $71 billion, whereas, for that same year the Section 8 expenditure was $29.9 billion – less than half. Furthermore, though low-income households (74.4% of all cost-burdened households) receive only 33.8% of the combined MID and Section 8 expenditure, high-income households (12.5% of all cost-burdened households) receive 60.1% of the combined MID and Section 8 expenditure. 

Second, the report finds that a smaller proportion of low-income households (11%) receive federal expenditures through Section or MID, compared to high-income households (53%), also resulting in a higher per-recipient household expenditure in high-income households. Third, the report notes that federal expenditures are largely concentrated in expensive coastal areas, with Bridgeport, CT being number 3 in the list greatest expenditure in the 50 largest metros in the country. 

The report concludes by recommending MID reform to convert the tax deduction to a tax credit, allowing all levels of homeownership to take advantage, as well as lowering the maximum mortgage eligibility to reduce the disproportionate benefit to high-income households. Finally, the Apartment List recommends any federal expenditure saved by the aforementioned recommendations should be redirected to fund programs for low-income renters.  

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