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Politics : The Citizens Manifesto
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From: TimF5/16/2011 7:56:53 PM
   of 492
 
Cut Mortgage Interest Deductions

Updated November 14, 2010, 01:45 PM

Rosanne Altshuler is a professor of economics at Rutgers University. She is a former director of the Urban-Brookings Tax Policy Center and was senior staff economist for President George W. Bush's Advisory Panel on Federal Tax Reform.

Homeowners enjoy more than $200 billion in tax subsidies — with about half of that from the mortgage interest deduction alone. But these tax breaks are unfair and make little economic sense.

The biggest benefits go to the wealthiest homeowners, not to low- and middle-class households who need the help the most. And renters get no benefit at all. Homeowner tax subsidies strongly favor housing over other investments. While the average investment is taxed at an effective tax rate of about 14 percent, the effective rate for owner-occupied housing is zero. Moreover, these tax breaks do little to encourage homeownership. Countries like Canada that have no tax deduction for mortgage interest have home ownership rates similar to ours.

Some argue that homeownership should be subsidized because it benefits the neighborhood. However, while there may be a positive correlation between homeownership and spillover benefits like low crime rates and high civic participation, there is little evidence that homeownership actually reduces crime or increases community engagement.

So why are we adding $200 billion a year to the national debt to subsidize homeowners? And if we must, why do we do it in such an unfair and inefficient way?

Here’s a better idea: Gradually cut the amount of mortgage interest eligible for the subsidy in half (from $1 million to $500,000 for first mortgages) and convert the deduction to a 15 percent credit. Those steps would help reduce the deficit, benefit lower and middle-income taxpayers, and improve the efficiency of the economy by treating investments more equally.

nytimes.com
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