As they devote the precious weekends of early spring to searching for tax records and filling out forms, millions of Americans share a single sentiment about our tax code:
There must be an easier way.A flat income tax or a national sales tax are much-discussed alternatives to our annual filing agony. But while those options may sound attractive, especially around April 15, millions of taxpayers would be furious if Congress were to make the one change essential to implementing either plan: elimination of the home mortgage tax deduction.
Ouch. Giving up that deduction would sting - a lot. In 1996, nearly 30 million taxpayers, or about one of every four individual filers, claimed the deduction to write off mortgage interest expenses.
Congress' Joint Committee on Taxation estimates the tax break will cost the U.S. Treasury about $233 billion between 1998 and 2002. Moving to a flat tax would be feasible only if we eliminated that huge deduction.
For the sake of both simplicity and fairness, dropping the deduction does makes sense. Why should borrowers get a tax break while those who choose to save money and avoid debt get no subsidy?
If the interest deduction did not exist, more people might move to apartments to lower their living expenses. By spending less on housing, they would have more money to invest in stocks and bonds, which would help U.S. companies finance expansions.
But we will continue to have a low savings and investment rate as long as we give the biggest tax breaks to the biggest borrowers. The more expensive your mortgage and the bigger your income, the greater the tax advantage. Workers earning less than $40,000 a year enjoy an average tax savings of $800 from the mortgage deduction, while people making more than $100,000 get an average savings of $5,600.
The mortgage deduction helps explain why so many developers are racing to build tract mansions in Alpharetta rather than high-rise apartment buildings overlooking Centennial Olympic Park. They know high-income families - even those weary of long commutes and big lawns - will keep buying huge houses to get those big tax breaks.
The case against the mortgage deduction seems pretty solid then: The tax break encourages people to put too much money into gourmet kitchens and not enough into more productive assets. It also makes drastic reform of the tax code almost impossible politically.
But that's not the whole story. The deduction also does a lot of good. Research shows when people put their life savings into a home, they tend to become better citizens, voting more often and paying closer attention to the local news.
The deduction also creates millions of jobs for Americans who build homes or make furnishings, appliances and lawn-care products. And while in theory, people who don't have huge mortgages could invest more in the stock market, the reality is most won't. Money tends to get spent on more clothes, meals and cars. Buying a home is a simple, safe way to create a retirement nest egg.
In short, the mortgage deduction encourages good citizenship, generates jobs and helps middle-class families build equity. But it also disproportionately subsidizes the biggest borrowers and hamstrings efforts to simplify the tax code.
If we want to tear up our tax forms, we'll have to decide whether we'd gain more than we'd lose by phasing out this long-cherished deduction.