Eliminating or curtailing the mortgage interest deduction would have a disproportionate impact on younger middle-class families according to testimony given by a representative of the National Association of Home Builders (NAHB) to the Senate Finance Committee.  The Committee was conducting hearings on tax reform options to provide incentives for homeownership.

Robert Dietz, an economist and assistant vice president for NAHB told the senators that the way housing is treated by tax reform will shape the economy going forward. Homeownership is considered by most Americans to be their single best long-term investment and source of wealth and financial security, he said.  "We believe that any policy change that makes it harder to buy a home, or delays the purchase of the home until an older age, will have a significant long-term impact on household wealth accumulation and the make-up of the middle class as a whole."

Focusing on the mortgage interest deduction, Dietz said that tampering with it in the short term could undermine the already fragile housing market, hurting demand, further lowering home prices, putting more homeowners under water and triggering even more foreclosures.

He disputed claims that the deduction benefits only wealthy taxpayers because so few homeowners itemize their deductions in order to claim it.  To the contrary, he said, 70 percent of the benefits go to middle-class home owners with household income under $200,000.  A deduction that reduces the net cost of monthly house payments is particularly important to younger home buyers who typically have less equity and are paying mostly interest in the early years of the mortgage.

Dietz also defended home mortgage interest deduction for second or vacation homes on the basis that it facilitates moving when owning two homes during the year or when holding a construction loan for a future home.  Eliminating this deduction, he said, could also threaten the economic viability of second home and vacation markets which can include small towns in states like Maine, Colorado, and Florida.  "49 states have a county where at least 10 percent of the housing stock consists of second homes," he stated.

Dietz also stressed the importance of several other housing tax incentives, including the Low Income Housing Tax Credit, which produces approximately 90,000 full-time jobs per year.