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Young Homebuyers

John C. Weicher

Tax reform is certainly a good idea, but getting rid of the home mortgage interest deduction is not (“Pre-empt the next crisis,” Editorial, March 24). The deduction isn’t a particular benefit for rich people, and it does help young families become homeowners and save toward their retirement.

Taxpayers with incomes above $200,000 are about 5 percent of all households who pay income taxes—the richest 5 percent. They pay more than half of all income taxes. But they only account for about 20 percent of all mortgage interest reported on tax returns, according to the IRS. That is much less than their share of other major deductions; they account for more than half of state and local income taxes, and almost half of charitable contributions.

Most of the benefit of the mortgage interest deduction goes to households that are not “rich,” households with incomes between $75,000 and $200,000. These are middle-class families, reasonably well off, but working, and working hard.

For young families, their first two assets typically are a home and a 401(k). Those are likely to be their most important assets over the rest of their working lives, particularly their home. For most middle-class families, the equity they build up in their home is more important than all their financial assets combined. That’s also true for lower-income families. Not all of them are homeowners, but about half are, and for them their home is by far their most important asset. Stocks, bonds and mutual funds are concentrated among the wealthiest part of the population. Homeownership and home equity are much more important for the middle class than they are for the rich.

The sooner young families can afford to buy a home, the more likely they are to enjoy an increase in the value of their home, and the greater that increase is likely to be. The mortgage interest deduction makes it easier for them to buy that home.

Profiting when you sell your home may seem like a distant dream right now, when foreclosures are rampant and the homeownership rate is declining. Most of the time, however, families that have bought homes have gained financially when they decided to sell. That is the normal experience.

Surveys show that families want to be homeowners, even in today’s economy, and they are right. Homeownership has traditionally been an indicator of middle-class status and a path to financial security, and it still is.

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