Dept. of Unintended Consequences
November 14th, 2012

Whenever the subject of tax reform comes up, someone suggests eliminating (normally by phasing out over time) the mortgage-interest deduction. Mitt Romney suggested he might like to do that. Will Saletan suggests sunsetting it 30 years from now.

This strikes me as a potentially really, really big decision. The home-mortgage interest deduction has been part of American economic life for a really long time. (Before it was carved out explicitly in 1986, all personal interest payments had been deductible since 1894.)

I assume that a bunch of smart people have created models about what killing the mortgage-interest deduction would do–not just to home prices, but to the overall mix of renters vs. owners, and all of the social indicators that normally get tied up therein. Crime, stability, family formation, fertility, etc.

But I haven’t seen any of that research and I’d be really nervous about enacting such a foundational shift in social policy without doing a whole lot of rigorous analysis as to what the secondary and tertiary effects might be.

  1. Klug November 14, 2012 at 7:06 pm

    What’s wrong with means-testing it? Have it sunset at, I don’t know, $400k and above?

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  3. Will Truman November 14, 2012 at 8:54 pm

    I could be waaaay wrong about this, since I have yet to own a home, but isn’t it limited in scope by the number of people who itemize? Favoring, generally speaking, those who are well off (though it’s inexact, I think there’s a correlation between how much money you make and whether it’s worth your while to itemize) and probably wouldn’t rent in any event?

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  5. Jon November 14, 2012 at 9:44 pm

    It makes perfect sense for the Democrat/Progressive left: most homeowners are married heterosexual couples who live in the suburbs and vote Republican; most renters are single women/minorities or upscale urban SWPL-types who hate everything the suburbs stand for. Throw in environmentalist hatred of so-called sprawl and the car vs. public transpo angle, and it’s a gimme for the left to hate homeowners and anything in the tax code that might favor them. Reward your friends, punish your enemies. Of course, you can’t say it like that; have to obfuscate with bullshit phrases like “smart growth” or “sustainable communities” or some other such nonsense.

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  7. Jeffrey S. November 14, 2012 at 11:04 pm


    It depends on what you mean by well off. My wife and I own a home and our joint income is under 100k. It is by far worth it for us to itemize our deductions given our 30 year fixed rate mortgage which has lots of interest (even at the amazing current low rate of 3.5 percent).

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  9. jon November 15, 2012 at 10:39 am

    Oh, and in terms of fertility and family formation, trust me, the consequences are very much intended. Fewer people polluting the planent; fewer families that vote suburban/republican interests–it’s all part of the long term progressive plan. Stanley Kurtz’s Obama book has a whole section on this stuff.

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  11. Jim November 15, 2012 at 10:53 am

    This is a pipe dream, but ideally you’d eliminate it as part of tax reform where you get to no deductions and no credits.

    I understand why it’s so popular, but I think it’s bad policy.

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  13. Will Truman November 15, 2012 at 2:07 pm


    Fair enough. My definition of well off may have been far too broad. My main thought is that it seems unlikely to make that much of a difference in buying/renting because people who itemize are most likely going to be able to afford to buy in any event. Which isn’t to say that the taxes saved aren’t nice, but it seems unlikely to me that they would be a decision-maker.

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  15. jonsmythe November 16, 2012 at 6:56 pm

    Why would that be ideal? We don’t live in some econometric vacuum. It’s good policy because it encourages family formation, social stability and economic prosperity. It’s good (Republican) politics because people who appreciate social stability/conformity, and all all the things that flow from it, usually vote GOP. It would social and political suicide for GOP to cave on MI deduction. Total sellout to the renter class, which is overwhelmingly Dem/minority.

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  17. Hoboken November 17, 2012 at 12:43 am

    Isn’t it time to realize that a housing bubble is not a real economy? If eliminating or reducing the interest deduction slows down the housing market, is that such a bad things?
    For one, fewer homes being built means fewer illegal aliens employed in that field.
    Second, think back to the “home buyer tax credit” – did it really help home buyers, or did it just enable home sellers to keep the prices high?
    The federal gov’t has been offering deductions & subsidies to “make it affordable” for college tuition & housing, yet the prices of those things keep going up & up. Perhaps it is time to stop distorting those markets.