For generations of U.S. homeowners, the tax deduction on mortgage interest has been a sacrosanct loophole that no one in Congress dare touch.
But the collapse in interest rates is producing a bizarre and, so far, underappreciated result. It is making that loophole less and less valuable.
Indeed, for growing numbers of homeowners the loophole is now almost completely worthless. The mortgage-interest deduction is no longer a middle-class tax break. It is becoming an increasingly regressive break that is aimed mostly at the upper classes.
This math is new. As recently as 2008, 30-year mortgage rates were over 6%. In early 2000 they were north of 8%, and back in the early 1980s they were in double digits. Back then people were paying a lot of interest, and the deduction was really valuable.
I’m not a political fan of this deduction. It makes no sense. It’s regressive and drives up home prices. The only justification, which is slim, is that it’s one of the few tax loopholes that have benefited middle-class people and not just the connected or the very wealthy.
But for millions of people, the tax benefits are now virtually nil.