Martin A. Sullivan (Tax Analysts) has published Mortgage Deduction Heavily Favors Blue States, 130 Tax Notes 364 (Jan. 24, 2011):

The benefits of the mortgage interest deduction are not evenly distributed among the states. … [T]he per capita tax benefit from the mortgage interest deduction for Californians is more than two and a half times that for Texans. Marylanders get nearly five times the benefit of citizens in neighboring West Virginia.

We always knew the mortgage interest deduction was unfair — favoring those in high tax brackets with big houses over renters and low-income homeowners. But until we did the calculations — as far as we know, the first of their kind — we did not suspect the geographic dispersion of tax benefits would be so large. …

In addition to the wide disparity in benefits, the other striking feature about the mortgage interest deduction is how well the subsidy correlates with Democratic strength. … [The fourteen] states with the highest per capita benefit were states captured by Obama in the 2008 election [Maryland, District of Columbia, California, Connecticut, Virginia, New Jersey, Massachusetts, Colorado, Washington, Nevada, Hawaii, New Hampshire, Minnesota, Delaware]. In the six states with the lowest per capita benefits [West Virginia, Mississippi, North Dakota, South Dakota, Arkansas, Oklahoma], Republican challenger John McCain won the vote. … Obama won the popular vote in 22 out of the top 26 jurisdictions, compared with 8 out of the 25 states with the lowest per capita benefits.

Unfairness of Federal Mortgage Interest Deduction:
Per Capita Benefits, Top and Bottom States, 2008

 
These new estimates give a glimpse into the future politics of tax reform and deficit reduction. As tax reform moves forward, we can expect Democratic senators to be the most lukewarm to proposals for limiting the mortgage interest deduction to less expensive homes. And if it is a choice between cutting the mortgage interest deduction and cutting tax subsidies for energy companies, that will be an easy decision for the senators from Oklahoma.

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