When politicians talk about closing tax loopholes, it seems like they're targeting greedy corporations. But they're also talking about Jaclyn Picarillo, 33, mom of two and American homeowner.
The home mortgage interest tax deduction is one of the biggest tax breaks available and it allows individuals to deduct the interest they pay to their mortgage company.
It has encouraged millions of Americans to become homeowners. But as lawmakers search for ways to control federal spending, reform the tax code and avoid the "fiscal cliff," there's a good chance they'll take a look at the mortgage deduction. It's worth more than $100 billion each year. All or part of that money could go a long way to finding the $1.6 trillion in additional tax revenue President Obama wants negotiators in Washington to agree to.
Picarillo, who lives with her husband, a three-year-old and a 15-month-old in Fairfield, Ct., a New York City suburb with both high housing costs and a high cost of living, bought her first home last year after previously renting. Picarillo and her husband decided to buy because they knew they were getting the tax break, and they used that money to renovate the home as well as make a down payment on a new car Picarillo needed.
The mortgage deduction has been fiercely guarded until now, although it costs the government over $100 billion a year by most estimates, because of the sentimental attachment to it and the idea that it helps middle class families afford homes. While those who benefit from the deduction, including homeowners and people in the real estate industry, are passionate about keeping the deduction in place, others say it should be eliminated because it overwhelmingly helps the wealthy and those who can afford to buy a home already.
"By getting rid of the [home mortgage interest tax deduction], I'm more likely to hold on to my car longer and less likely to hire a builder to improve the house," Picarillo said. "Why would you become a homeowner without it? There are so many worries with owning a home, many people might think it's easier to rent."
If Picarillo sounds savvy about the deduction, it's because she is. She is also in the real estate industry, working with her mother to sell homes in Fairfield County, which includes Westport, Ct., where some of the country's most expensive homes are located.
She says that many of her customers are "on the fence" about buying in a market that has been struggling the last few years.
Picarillo describes her family as "definitely middle class" and says without the deduction she will have to "work a lot harder" to maintain the lifestyle she currently has.
The deduction, which has been around in some form or another since 1913, overwhelmingly helps people in areas like the Northeast and metro areas with high home prices. Edward Kleinbard, the former chief of staff to the U.S. Congress's Joint Committee on Taxation, says it should be up for elimination or reduction because it just doesn't help the majority of Americans.
"The bottom 80 percent of America, which includes the middle class, is only getting 20 percent of the tax benefit," Kleinbard, who is also a professor at the University of Southern California Gould School of Law, explained. "That's a very top-weighted distribution and it doesn't apply to the middle class because by definition the middle class is the 50 percent."