GleckmanWatch

by Reihan Salam

That sounds ominous, but I’m just rounding up a couple of Howard Gleckman posts from TaxVox.

In the first, Howard describes new TPC research by Ridathi Chakravarti and Dan Baneman on the impact of mortgage interest deduction elimination or reform:

 

In the unlikely event Congress simply repeals the mortgage deduction, the average tax bill would increase by $710. But those who earn between $30,000 and $40,000 would pay an average of about $70 more while those making more than $1 million would pay an additional $4,000.   

But the deduction isn’t going to be repealed. And if it was, some of the added revenue would surely be used to buy down income tax rates. More likely, Congress will scale back the deduction or replace it with a new design such as a tax credit.  With some of these alternatives, typical middle-income households would likely pay less tax, not more. And many will see no change at all.  

What’s going on?  Mostly, the mortgage deduction is the classic upside-down tax subsidy. It gives the biggest tax breaks to the highest earners who borrow the most money to buy the most expensive houses.

This is one reason why I’m struck by the contours of the tax debate. There is broad agreement that there the excess burden of taxation is a real thing that exists, though of course different people disagree about the actually elasticity of taxable income across real-world workers. Nevertheless, we can see how increases in marginal tax rates can dampen growth. In contrast, the mortgage interest deduction is an “upside-down tax subsidy” that is extremely expensive, yet it is all but untouchable. We constantly debate higher MTRs, yet we hardly ever talk about eliminating the mortgage interest deduction. 

In another post, Gleckman suggests that we might see some movement around fundamental tax and entitlement reform. He is slightly encouraged, and so am I. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.