Is it time to do away with the home mortgage income tax deduction? Harvard Economics Professor Edward L. Glaeser thinks so.
Glaeser wrote an interesting piece for the New York Times yesterday arguing for just that.
The deduction is regressive, ecologically unfriendly, an encouragement to home borrowers to take on too much debt, and an economic force for driving up housing prices, he says.
He calls for a gradual elimination of the deductions, and, if there is a public policy decision to encourage home ownership with tax policy, replace it with a flat tax credit.
He admits that his idea is not going any where – he calls the mortgage deduction a "sacred cow" of tax policy -- but he doesn't note that it's it is already in place – in Canada.
There is no mortgage interest deduction in Canada, and, for the record, that hasn't resulted in homelessness up north.
Of the 12.4 million households in Canada (in 2006), more than 8.5 million owned their homes. That's 67.5 percent. U.S. Census Bureau figures for the first quarter of 2008 show the U.S. homeownership rate here is 67.8 percent.
That's a lot of tax deduction buck for not much homeownership bang.
Meanwhile, Canada's banking system, which isn't as saddled with overextended home borrowers, is in a far sounder condition at the moment than our own.
On the other hand, it also has led to the invention of the incredibly complex "Smith Maneuver," a bizarre scheme in which Canadian homeowners with the cooperation of their banks rearrange their home debt in such a fashion that it can be classified as investment debt, which is deductible.
Crafty homeowners will always find their way to get around taxes, I suppose.
Here's a link to Glaeser's piece.
