Who Benefits From Tax Expenditures?
By far the biggest tax expenditure is the fact that employer-provided health insurance isn’t taxed as income: if it was, the U.S. Treasury would collect about $174 billion per year more. The second-biggest tax break is the deductibility of mortgage interest, which costs the Treasury about $89 billion per year…
On their calculations [the Tax Policy Center], 41% of the total value of tax expenditures goes to the top 5% of taxpayers by income, and 24% of the total value goes to the top 1%. Remember, those in the upper part of the income distribution are far more likely to itemize deductions. And because those with high incomes face higher marginal tax rates, the amount of taxes they save from tax expenditures is also higher.
Source: Timothy Taylor blog
One more argument for the flat tax.
The mortgage interest tax deduction is highly regressive and is nothing more than a wealth transfer from relatively poorer renters to relatively wealthier homeowners.
The thing is though, most people in the US are ignorant about this. Ask someone making $40k a year if we should do a Simpson-Bowles or Ryan plan and drop this deduction while lowering overall rates and they’re scream at you in fury. Meanwhile they probably don’t even itemize and think that just because their bank sends them the interest statement at year end they get the deduction. Then, even if they do itemize, they don’t realize that if you cut the deduction (which favors those with largest homes and largest income the most) and took the savings and gave it to everyone equally, it’d make the tax code more progressive, ie, they would come out ahead.
There is a reason almost all other countries do not give this deduction.