Home, Boy! Home, Boy!

People who know me in real life (and G.D. Frogsdong, because of some comments at his shop a few months ago) know that I've occasionally disparaged the home mortgage interest deduction as a massive and regressive distortion of the housing market.  In that vein, this Daniel Gross piece in Slate is a pretty good, easy-to-read explanation of the problem.

Have a look, and give it some thought, as most people don't really consider the systemic negative effects of this particular tax policy.

[Hat Tip: Suburban Guerilla]

Comments

[Desert Donkey]

Wow. I'm not the only one.

Largely because this benefit is tied into the american dream, it is virtually impossible to get anyone to take seriously the various negatives it imposes.

Thanks for speaking up.

[Abby]

No, I agree. I think that home ownership is a valuable goal--I even think that Margaret Thatcher was probably wise to privatize some of the council houses--but I think that the home mortgage interest deduction is a very poor way to do it. I would like to see more progressive strategies aimed at helping poorer and lower middle class people to buy.

Funny thing is that when you get really exclusive and buy into a co-operative, you can't get a mortgage and thus no deduction for the interest payment on the loan.

As an aside it is interesting the extent to which culture can sometimes refuse to be susceptible to the tax code. Back in the 70's when pretty much all interest payments were deductible, my grandfather was advised to buy a car on credit. He made the payments, but after a while he just couldn't take it anymore and paid the whole thing off. For true Yankees aversion to debt runs deep.

[paperwight]

For true Yankees aversion to debt runs deep.

I'm not a Yankee, but I am so there. I had zero debt as soon as I could swing it. Debt is almost always chains.

[Mark Paris]

I agree in part, but I have some concerns. For one thing, that gigantic increase (in the home mortgage deduction) from 2002 to 2003 looks kind of suspicious. It nearly doubled. I would want to see some hard numbers to back that up.

On a practical level, while the mortgage interest deduction favors higher income people, eliminating it won't help lower income people unless taxes are reduced for them somehow. So, are we talking about eliminating the mortgage interest deduction and then adjusting tax rates so that the higher income people still pay the same rate while lower income people pay less? Or will the feds just get more money while the lower income people continue to pay the same amount? Isn't that a tax increase on the rich? Won't the rich all across the country howl in protest about paying more than their fair share? In other words, we'll need coats in hell before the mortgage interest deduction is eliminated without lowering tax rates on upper income people to account for it. And that would solve no problems.

[Desert Donkey]

Mark Paris, Currently those who file using the standard deduction (low income renters and homeowners) are subsidizing those who are buying $300k McMansions. If the mortgage deduction were phased out it would stop that subsidy. And yes those benefiting today would scream.

Transportation, waste of trees, the regressive subsidy cannot last forever. The political path to change it though is nowhere in sight.