See
Get Rid of Big Housing's Big Break by Matthew Mitchell and Tad DeHaven of Mercatus.
"When President Donald Trump laid out his principles for
tax reform in August, he called for "getting rid of the loopholes and
complexity that primarily benefit the wealthiest Americans and special
interests." Getting rid of the mortgage interest tax deduction would do
precisely that: It benefits wealthier Americans and the housing lobby at
the expense of the majority of taxpayers, who receive no benefit and
yet are forced to cover the deduction's approximately $70 billion annual
revenue loss to the federal government.
Furthermore, as our
Mercatus Center colleagues recently noted,
even the benefit for wealthier taxpayers is illusory "because the tax
gains to homeowners are largely offset by increases in home prices."
That leaves the powerful housing lobby – represented most
prominently by the National Association of Realtors and National
Association of Homebuilders – as the real beneficiary. Big Housing has
spun a heartwarming fairy tale that the mortgage interest tax deduction
fosters homeownership and the virtuous American values that come with
it. There's just one problem: It doesn't.
But don't take our word for it.
According
to Harvard economists Edward Glaeser and Jesse Shapiro, "the home
mortgage interest deduction is really not a pro-homeownership policy in
any meaningful sense." In July, a study from economists Jonathan Gruber,
Amalie Jensen and Henrik Kleven
concluded
that the deduction "has a precisely estimated zero effect on
homeownership, even in the very long run." And as many others have
observed, countries that do not offer a tax break on mortgage interest
have similar – and even higher – rates of homeownership. Indeed, there
is no historic correlation between U.S. homeownership rates and the
subsidy value of the mortgage interest deduction.
So why, then, has Big Housing fought so hard to keep the
mortgage interest deduction? The answer is that although the deduction
doesn't affect home ownership, it does incentivize people to purchase
more expensive homes. That translates into more money for realtors and
home builders. And because the deduction is taken against the interest
payment and not the down payment, it encourages home buyers to put more
of the purchase on credit.
So o in reality, the
deduction encourages home-borrowship, not homeownership. Did we mention
that the Mortgage Bankers Association is also a prominent defender of
the mortgage interest deduction?
Big Housing knows there's blood in the water, and the
mortgage interest deduction is running out of defenders. But as the tax
reform process moves along, the deduction could end up getting replaced
with a tax credit – allowing those who do not itemize to obtain a tax
break against their mortgage payments and expanding the preference to
more taxpayers. With more people getting the tax preference it will be
harder to eliminate it, even if those who think they benefit from it
don't actually do so.
But the bottom line is that the federal government has no
business using the tax code to play favorites with economic activity.
The goal should be to lower rates and eliminate all targeted tax breaks
in the process. A simpler, less punitive tax code that didn't play
political favorites would be a boon to the broader economy. And it would
dent the armor of a privileged commercial interest that has been
cashing in at the public's expense for far too long. Otherwise, Congress
will have let this monster swim away."
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