The Agenda

Bloomberg View on the Tax Break for Mortgage Debt

A very sensible editorial from the folks at Bloomberg View:

Forty-nine percent of respondents in a Bloomberg National Poll said they were willing to abandon the mortgage tax break if it meant lower overall tax rates. Only 45 percent opposed the switch. That’s a sharp contrast with polling patterns of prior years, when the public showed 2-to-1 support for keeping the mortgage deduction. The Bloomberg poll of 1,000 adults conducted June 17-20 has a margin of error of plus or minus 3.1 percentage points.

This change in sentiment creates a rare opportunity to fix a tax-policy mistake that the American public and its political representatives have defended tirelessly. The case against the deduction is strong. It is costing the U.S. Treasury $104.5 billion this year. It showers most of its benefits on wealthy people in high tax brackets who were going to buy homes anyway, while offering too little for strivers in the lowest tax brackets.

Worst of all, this tax break makes taking on unsustainable levels of personal debt too attractive. It can goad people into buying homes they can’t afford. It also encourages them to keep borrowing against the real estate they have, creating shaky home equity loans. Instead of making homeownership more affordable, the mortgage deduction may create housing bubbles and, in some places, inflate home prices so new entrants are priced out of the market.

For more on how the mortgage interest deduction inflates home prices, I recommend Rethinking Federal Housing Policy by Edward Glaeser and Joseph Gyourko.

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