COMMENTARY: Let’s End the Mortgage Interest Deduction

By David M. Kinchen

COMMENTARY: Let's End the Mortgage Interest Deduction

I rarely agree with anything the far-left Nation of Change news/opinion site has to say, but I have to agree with a new article on the site about ending the mortgage interest deduction, headlined “Close the Mortgage-Deduction Loophole”:

http://www.nationofchange.org/close-mortgage-deduction-loophole-1347631326

Noting that the mortgage interest deduction helped enable the housing bubble, author Froma Harrop writes:

“Letting homeowners deduct interest paid on their mortgages from taxable income makes no sense. It encourages taking on more debt, discriminates against renters, subsidizes one kind of spending over others and favors the upper incomes. It advances the questionable public goal of making more Americans into homeowners. And it costs the Treasury about $100 billion a year.

“Although the mortgage-interest deduction is bad policy on numerous fronts, neither party seems keen to take it on. The real-estate industry portrays any cross-eyed look at the loophole as a frontal assault on the American Dream.

COMMENTARY: Let's End the Mortgage Interest Deduction

“To their credit, Republicans baby-stepped in the right direction by trying to drop their usual support for the mortgage-interest deduction from their party platform. Candidate Mitt Romney has called for revenue-neutral tax reform that would lower federal income-tax rates while getting rid of loopholes — what is called ‘broadening the tax base.’ (He refuses to be specific on which ones he’d close.) By leaving out mention of the mortgage deduction, the platform would push the message along.

“No sooner was that thought on paper than the real-estate industry went to work on the Republican Party. In its place was put a pledge to protect the mortgage deduction if tax reform doesn’t happen. Still, progress.

“Why offer a tax break for buying one product and few others? If you take out an auto loan, the interest you pay cannot be deducted from taxable income. If you buy a sofa on the installment plan, same no-deal. If you charge airline tickets on your credit card, again, the interest on your unpaid balance is not deductible.

“The social-policy argument for the mortgage deduction is that it helps Americans buy homes, and that homeownership stabilizes communities. The first part is debatable. Canada does not allow for a mortgage-interest deduction, and its rate of home owning matches ours.

“What we see here is social engineering gone haywire. The federal government should not care whether you buy or rent your residence. Because lower-income people are more likely to rent, they are left out. Because higher-income people are more likely to have bigger houses with bigger mortgages, they benefit disproportionately. Meanwhile, the deduction is useless to those who don’t itemize, which is most taxpayers.”

I made the same point about Canada in a column on Jan. 14, 2011:

“Gina Pogol, writing in HSH.com, noted that “there is more incentive to pay down mortgage debt because there is no tax deduction. Canadians mostly pay their mortgages electronically and automatically from their checking accounts — so extra effort must be made to actually miss a monthly payment. Canadian fixed-rate mortgages generally come with anti-refinancing prepayment penalties to protect lenders from interest rate drops, and the mortgage interest rates on these loans are fixed for a maximum of five years — an incentive to pay the debt down faster.”

I noted in my 2011 piece that “Despite the lack of a mortgage interest income tax deduction in Canada, the nation’s homeownership rate is as high or higher than the rate in the States, about 68 percent. On top of this — a point that appealed to me — there’s no need to prop up with my tax dollars (and yours) ailing government sponsored enterprises (GSE) like Fannie Mae and Freddie Mac that are neither fish nor fowl (private or government) because agencies like that are not present in Canada.” 

 

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