Even Evil Presidents Have Good Ideas: Eliminating the Mortgage Interest Deduction
Of course, George Bush is evil. That is an axiom of this site. That said and speaking of taxes, he has done precisely one thing that seems, at least as far as I know, to be a good thing. He commissioned a group of economists to go through the tax code and analyze it and simplify with a mandate to base their decisions on sound economics, not politics. Bush told them there would be no sacred cows, everything was on the table. And they did it. One item they propose eliminating is the deduction for mortgage interest. Lobbying from realtors, the main group that profits from the deduction (more on that) got Bush to send it back for reconsideration, but the economists came back with the same answer. All I can say is hats off to them and, honestly and frankly, to Bush. This deduction has stuck in my craw for a long time. The vast majority of the benefit goes to the wealthiest taxpayers. It encourages people who can already afford houses to buy McMansions and second homes. Unfortunately, it does absolutely nothing to help middle class familes afford a starter home. Most of these people do not earn enough and pay enough in interest to use it, since they just take the standard deduction as do almost all renters. Furthermore, it has a secondary consequence whereby wealthy people who take advantage of it then itemize their taxes, which mean they get writeoffs on medical expenses and home office expenses and all sorts of things that average people don’t get because they take the standard deduction. Unfortunately, despite the fact that the proposed alternative, substituting a credit that phased out as income increased, would benefit far more Americans and in particular those who actually need it, polls are running strongly against showing once again the propensity of American taxpayers to act against their own self interest. Recently the New York Times magazine ran an excellent article on the history of the mortgage deduction and who benefits and frankly it makes sense I just don’t buy Daniel Gross’s argument in Slate that the tax change is meant to “screw Democrats” because Democratic states tend to have higher real estate prices partly because 1) who cares whether Democrats or Republicans are the beneficiaries of bad policy, that policy should be fixed and 2) he doesn’t have any detailed demographic data to show who in those states would benefit because even the most liberal states have over 40% Republicans and I would guess that Republicans occupy far more than 40% of the expensive houses that benefit.
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