Eliminate The Home Mortgage Interest Deduction ?
That’s exactly what one economist argues:
Why do we subsidize mortgage interest? More than Social Security–the benefits of which are taxed–it’s the most sacred cow in the Federal Budget. But it’s a truism that a subsidy yields higher prices. Home sellers can charge more because buyers are effectively subsidized by their ability to deduct mortgage interest. The purpose of the deduction is to encourage home ownership even though the deduction extends to people who hardly need government largesse. Canada has no mortgage interest deduction and yet its rates of home ownership are comparable to those in the United States. In other words, if we phased out the deduction, it probably wouldn’t reduce the rate of home ownership.
We should have a debate about whether we really need it any more and how it might be phased out without disrupting the economy and the lives of homeowners, many of whom already find themselves in turmoil because of the subprime collapse.
It’s a radical proposal no doubt, but I think that Cooper has a point here. To extent that taxation has to exist at all, it should exist solely for the purpose of raising revenue. From the beginning of the income tax, though, Congress and the White House have used it as an instrument of social policy; accomplishing things via the tax code that they’d never be able to pull off if they actually had to pay for it.
Like Social Security, though, the Home Mortgage Interest Deduction has become a political sacred cow. Anyone who even came close to suggesting it’s elimination would, no doubt, find themselves buried by protesting homeowners and lobbyist from the building industry, the legal profession, and the National Association of Realtors. All of whom will no doubt argue that such a move would destroy the housing industry.
As Nick Gillespie notes, though, Congress did something like this back in 1986 when it eliminated the deduction for credit card interest and, contrary to predictions, that industry has thrived over the past 20 years.