What if the mortgage interest deduction was eliminated?

What would your reaction be if lawmakers decided to do away with the mortgage interest deduction? For certain homeowners, tax season, along with all the usual stress it brings, means the opportunity to deduct some of the interest they paid on their mortgages all year long. However, there have been some discussions, both on Capitol Hill and beyond, of doing away with the famed mortgage interest deduction as a way to correct this country’s ever-growing deficit.

As you might anticipate, many homeowners and professionals are up in arms over the idea, while others think eliminating the deduction could be a reasonable solution.

To get a sense of the differing opinions that are out there, we reached out to four experts in the field and asked them to offer their thoughts on the future of the mortgage interest deduction. Here’s just some of what they had to say:

Alan Viard is an economist at the American Enterprise Institute for Public Policy Research:

A cold-turkey end to the mortgage interest deduction would send housing prices downward.

Ultimately, there are two factors to consider: the value of existing houses and the quantity of resources devoted to housing. If the deduction was eliminated, you’d see fewer resources going into housing and more into housing investments. It would be more efficient.

Government should encourage homeownership, but mortgage interest deductions aren’t an effective way.

Danielle Hale is a research economist at the National Association of Realtors

Homeowners would see their home values decline 15 percent on average if the deduction was cut. Higher-value areas would feel the most effect. Many homeowners have significant parts of their net worth tied up in their homes. So, that’s a problem.

The 75 percent of homeowners who have mortgages use the deduction. It’s vital to the mortgage industry and the economy. All sorts of research ties homeownership to additional benefits too. For example, homeowners vote more often and engage in civic groups.

Polina Vlasenko is a research fellow at the American Institute for Economic Research

If the deduction goes away, the housing market will be hurt. There will be lower demand and lower home prices. It won’t have a big effect, though, since nobody buys a home just for a tax deduction.

But removing it is difficult, and there might be an initial shock effect. People will pay more taxes and have less income left over for spending. And the economy isn’t recovering that much. There may be a better time to do this.