The mortgage interest deduction (MID) is linked positively with intergenerational mobility – a measure of economic opportunity – according to new academic research from economists at Harvard and Berkeley. This paper comes on the heels of separate research showing that trading the MID for lower individual income tax rates results in lower economic growth.
Using matched tax panel data, the team of economists examined the impact certain tax policies had on differences between the income percentile of children (born in 1980 or 1981 and now adults in the labor market) and the income percentile of their parents when those parents were young workers in the labor force. Differences in income rankings between parents and now adult children are indicative of intergenerational mobility. In contrast, high correlation between parents’ rankings and adult children’s rankings suggest low mobility and less dynamism and economic opportunity.
The tax policies examined include a measure of progressivity of tax expenditures, as well as specific policies including the MID, the state income tax deduction, and state-level earned income tax credits.
In explaining why the MID would be linked to economic mobility the academics note:
“These deductions may impact economic opportunity by providing opportunities for credit-constrained middle and low income families to become homeowners.”