Kill the Mortgage Deduction

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I agree with Ezra Klein in agreeing with Ed Glaeser. Here’s something, like trashing ag subsidies, you can get a lot of libertarians and liberals to agree on. It can be a bit disheartening to see just how little this kind of agreement amounts to when compared to the incentives of the politicans. (Iowa’s extremely powerful Senators will die in the last ditch for our subsidies.) But I think this kind of wonk consensus building really matters over the medium-term. Democracy is not a mechanical cui bono machine and elite opinion can, when not coopted by the incentives of the parties, work as a countervailing force.

31 thoughts on “Kill the Mortgage Deduction”

  1. Here’s something, like trashing ag subsidies, you can get a lot of libertarians and liberals to agree on.

    Heck, it's something that you can get conservatives to agree on. Policy wonks and intellectuals across the spectrum agree on that.

    Doesn't mean bupkis, because not only do the politicians and interests favor the ag subsidies and mortgage interest deduction, but the people at large do as well. Bryan Caplan's book makes for sobering reading on that account.

  2. But I think this kind of wonk consensus building really matters over the medium-term.

    Wonks of all stripes have agreed about ag subsidies for years. It hasn't mattered. Certainly the fact that no one actually cares about abolishing them enough to vote that way (is there anyone who voted for Sen. McCain because he's more against farm subsidies?) contributes.

  3. Completely off subject, but nevertheless important to me … When will your prebuttal to the lovely Miss Klein be available for a watch or listen, or read?

    Also, since those on the left are often prone to be swung ideologically by the romantic or sentimental (and thus, ipso facto art), I would suggest anyone who favors bailouts or stimuli to watch this little masterpiece:

    http://www.youtube.com/watch?v=MfL7STmWZ1c

  4. I've hated the mortgage deduction all my adult life. It's probably too much to hope that it could be phased out.

    We also had the standard, and Bush-special, capital gains exceptions for homes. Those are probably even tougher to deal with … but if we could we wouldn't have an economy so twisted toward and dependent upon single-family homes … as everything really. They have become our shelter, out tax shelter, and our retirement funds.

    At least as long as bubbles could be maintained.

  6. I thought, for a moment, that a plan to repeal the mortgage deduction at some point in the future while promising to grandfather in all mortgages existing at that time would certainly give the housing market market a boost.

    But then I remembered that government policy is, of course, completely impotent.

    <winks>

  7. I'd expect that if this was possible at all, we'd still need a 10 or 20 stepwise reduction, to capture people's concept of fairness.

  8. We also had the standard, and Bush-special, capital gains exceptions for homes.

    Bush special? Wasn't the most recent relevant change the 1997 change under Clinton and the Republican Congress? How was that a “Bush special?”

    Honestly, do you know of another change that I'm forgetting?

  9. That will hand another $5k of my income to Uncle Sam. It will also likely cause the destruction of the private real estate market and mortgage banking.

    Just in case you missed it – oh yeah, that's right, you probably were still shitting your pants back then – the S&L crisis of the 80's was caused by the elimination of the commercial mortgage deduction. Many of those who owned commercial properties simply walked away from them, leaving banks holding huge mortgages on properties of now trivial value. S&Ls, having lower cash reserve requirements than normal banks (a permanent liquidity crisis, if you will) were left holding the bag and went bankrupt by the hundreds.

    Eliminating the mortgage interest deduction at this point would likely wipe out a generation of homeowners, plus any banks with any substantial mortgage holdings, never mind the affect on securitized mortgages, which are heavily leveraged to begin with and the source of our current liquidity crisis.

    Hey, I'm beginning to like this liberaltarianism stuff Will. It's just like being a bomb chucking leftist revolutionary, except without all the boring Marxist cant.

  12. Yup. What's the difference between $x off one's taxes for a buying a house and a $x government check for buying a house? Poor people don't pay taxes, so you can't really pretend transfers to them are a reduction in taxes, but the mortgage deduction really is in fact the equivalent of food stamps for the middle and upper-classes. The difference is, they don't need it and it hurts poor people.

  13. As a homeowner, I pay a lot of local property taxes that renters don't have to pay.

    I always saw the mortgage deduction as a way to balance that out.

    Who knew I've been on the doll the past 25 years (yeah, my mortgage deduction is pretty close to zero lately)?

  14. Although I doubt he's still following along …

    someguy – there's no reason that eliminating the mortgage deduction can't be neutralized with another reduction to (say) payroll tax, or income tax.

    Or how about this – turn it into a deduction from interest income earned. Create incentives to save, rather than to borrow and build.

  15. Landlords pay property taxes and pass it on to renters.

    Look, we're all on the dole in one way or another. And that's the trick. Everybody has a strong incentive to protect the subsidies they get (a concentrated benefit) and a weak incentive to oppose the subsidies other people get (a diffuse cost).

  16. Aaah, but renters can always easily move to avoid those taxes if they get too high.

    As I said, my mortgage deduction is virtually zero these days, but it sure was a lifesaver back when I was starting my family 20-25 years ago.

    Houses are expensive things to keep up.

    I vote we keep the deduction.

  17. I should point out that Canada doesn't have a mortgage tax deduction and has the same home ownership rate as the US.

  18. >>>Yup. What's the difference between $x off one's taxes for a buying a house and a $x government check for buying a house?

    People on welfare didn't earn the money they receive. It's taken from others and given to them. A deduction lets me keep more of my personal property. My money is not presumptively government property, on which I bear the burden to prove entitlement to retain it. The expectation value of my property is among the property interests that I own. I wouldn't feel happy to have that blithely taken away.

    You seem to be operating under the presumption that Uncle Sam is entitled to take more of my money, and it's just not fair that the law should favor ownership of private property. That's a funny assumption coming from a guy who works at Cato. There is a word describing people who favor diminished property rights, higher taxation and social liberalism. The word is “liberal.” You should stick to that and drop the 'tarian' portion of your fusion project's name; it would save some typing time.

  19. What liberals support getting rid of the deduction? Are these mythical beasts that live in your closet?

    I've heard conservative pundits and the rank-and-file talk about getting rid of the deduction, but I have never heard any sort of liberal say that. I'm sure one or two are out there, but they are a very, very small number.

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