Jerry, I presume you know this, but the UK successfully abolished its MIRAS (Mortgage Interest Relief At Source) tax break in 1999/2000. Gordon Brown did it because he considered it a perk for the middle-class (which, in the U.K., means upper-class in American terms). It was the culmination of a gradual erosion (at one point, there was tax relief on all loans) and so was essentially unnoticed as the U.K. housing boom began (and presumably therefore only slightly depressed irrational exuberance). Sadly, the abolition raised billions for the Treasury, so not all money was redirected by the market. Predictably, with the decline of the housing market, there are calls for it to be reintroduced. I would suggest that the lesson from the U.K. experience is that mortgage deduction can be phased out without too much pain for the homeowner or the housing market, but that if you want to do it, any such reform should be introduced while the housing market is on an upswing, not on a downswing, and that it should be done by gradual pruning.
Of course, our friends at Americans for Tax Reform will object to any removal of a tax break, for precisely the reason that tax breaks deprive government of money. That’s a pretty good objection in my book.