Housing Deductions

Yes, I take the deductions for mortgage interest and property taxes.  Just the same, I think we all can live without either of them, and probably should — in time.

Most important, they're not fair.   Renters pay their landlords'  mortgage interest and property taxes, but the landlords get the tax advantages.  Those who can afford the biggest, most expensive homes get the greatest benefit, and those who can afford multiple homes get even more.  Change has to happen — but given the popularity of of the mortgage and property tax deductions, the big question is how to get those particular loopholes closed.

As Lord Robert Baden-Powell, homosexual hero of the Siege of Mafeking in the Boer War and founder of the Boy Scouts is reputed to have said, "Softly, softly, catchee monkey."  (Damn, those Brit colonialists were so attuned to those they conquered and oppressed.  Nevertheless...)

"Softly, softly" means not all at once.   That makes a lot of sense.  People (with encouragement from their realtors) factor in tax savings when they buy.  Realtors are able to convince them they can afford houses far larger and fancier than they really ought to be considering.  Granted, if they lost their mortgage interest deductions all at once, there would be a hell of a lot more foreclosures.

The obvious answer is to cap the mortgage interest deduction — so only mortgagees of relatively expensive houses would be screwed.  After that, we could drop the cap, year by year.  After ten or fifteen years, the deduction would be gone.  Housing prices would fall, gradually, and families would stop buying more house than they really could afford.  Since mortgage interest is front-loaded, current homeowners should feel little financial impact year to year.  New buyers should be able to predict how the phase-out of the deduction would impact them, and let that help guide their home buying decisions.

The property tax deduction could be phased out in much the same way, only faster.  The greatest impact would be in wealthier, higher-tax areas — and the change might create political pressure for the states to take on more of the burden of funding education, which might create greater equity among school districts.

By the way, I believe the phase-out of any and all deductions should be accompanied by higher tax rates, because when government takes money out of people's pockets, it has an obligation to put some back by providing better services and benefits — but for all, not just for some.