Workers install siding on a new home in Vienna, Va., on March 27, 2014. A tax break for homeowners with mortgages has long encouraged new residential construction. (Reuters/Larry Downing)

Republican presidential candidates are pushing a simpler, cheaper tax system.

"We should make it so that for the majority of Americans, it should take 15 minutes to do your taxes — not days, weeks, or months," New Jersey Gov. Chris Christie has said.

Another candidate, Sen. Ted Cruz (R-Tex.), has called for a tax code "that would allow every American to fill out his or her taxes on a post card."

It's easier said than done. A truly simpler, more efficient tax code would be one without any, or least many, tax breaks, economists say. The problem is that there's rarely agreement on which tax breaks are necessary and which aren't.

The mortgage interest deduction, which many economists say is among the biggest and most problematic in the tax code, offers an interesting case study of how difficult it can be to deliver on the promise of a simpler tax system.

The federal government gives a tax break to families that pay interest on a residential mortgage. It costs Uncle Sam $69 billion a year, and almost all of that money goes to households with at least $100,000 in annual income, according to the congressional Joint Committee on Taxation.

Many economists agree the deduction mainly serves to encourage more affluent Americans to buy bigger homes. Yet the deduction has proved appealing. Even Sen. Rand Paul's (R-Ky.) radically simple tax plan maintains this deduction, even though Paul would eliminate almost all of the other quirks in the system.


Supporters of the deduction say the government should help people buy homes because, as they see it, a neighborhood where people own the homes they live in is a more stable and closely knit place. Yet, as the Congressional Budget Office has noted, countries such as Australia, Canada and the United Kingdom, which do not offer a tax deduction for mortgage interest, don't have lower homeownership rates than the United States.

One study estimated that the mortgage-interest deduction, among a number of other credits, has added the equivalent of a laundry room, a master bath and two full family rooms to the average Los Angeles home.


The deduction "gives very big tax breaks to people who own very expensive homes," said Alan Viard, an economist at the conservative American Enterprise Institute. "The thing is just so poorly designed if that was your goal: to really persuade people to become homeowners. If your goal, on the other hand, was to encourage everyone to have a more expensive, bigger house, then it would be perfectly designed."

The deduction might also be part of the reason that many economists think that businesses in the United States don't invest enough, holding onto broken-down or obsolete equipment instead of making new purchases. Banks dedicate a lot of money to residential mortgages, which means sometimes funds aren't available for businesses looking for loans, said Chuck Marr, the director of federal tax policy at the liberal Center on Budget and Policy Priorities.

"Investment is tilted too much in the direction of residential real estate, residential development, and away from business investment," he said.

Arguments such as these may be part of the reason that some politicians, while supporting a tax break for homeownership in general, have also flirted with the idea of tinkering with the existing mortgage interest deduction.

Sen. Marco Rubio (R-Fla.) has called for a "reformed credit," though in his tax plan, the presidential candidate did not specify what changes he would make.

And Christie broached the possibility of reform in a speech earlier this year in New Hampshire. "We should seek to keep in place the deduction for charitable contributions and that for interest on home mortgages — at least for a first home," he said. About 11 percent of the deduction is awarded for second homes.

During the last presidential campaign, Republican nominee Mitt Romney likewise suggested getting rid of the credit for second homes, later proposing a cap on all deductions that would have limited wealthy households' ability to take advantage of the deduction for mortgage interest.

President Obama has suggested limiting the tax deductions for higher-income households, taking aim not specifically at the mortgage interest deduction but at the general lopsidedness of the tax code when it comes to deductions and loopholes.

Many proposals from economists and tax experts would convert the mortgage interest deduction into a credit, so that the majority of poor and middle-class taxpayers who take the standard deduction instead of itemizing would be able to receive it, as well.

Proponents of reform also suggest limiting the break to the first $300,000 of money spent on a home. These adjustments would make it more likely that the benefits go to people who really might not be able to afford a home without them.