Wednesday, August 22, 2012

This Enquiring Mind Wants to Know ...

A recent post at Volokh about consensus economic policies included this:

One: Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?

There are really two issues here: market distortion and subsidy; it is the latter which puzzles me.

First, if it is a subsidy, who is subsidizing whom?

Second, why eliminate it only for homeowners, but not rentiers?

(Full disclosure: I am an owner/occupier.)

2 Comments:

Blogger Harry Eagar said...

The justification is not only, or even primarily, economic; just as the obeisance toward small business is not easy to justify on merely economic grounds.

August 22, 2012 9:53 PM  
Blogger Hey Skipper said...

I don't think the justification is primarily economic either, which, in and of itself, perhaps should exclude it from a list of economic policies.

But if economists are going to object to the mortgage interest deduction on subsidy grounds, I'd think a little more justification would be in order.

August 23, 2012 9:25 AM  

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