Alas, the mortgage interest deduction won’t go away

Policy Analytics in Washington, argues that, given America’s homeownership rate of about 62 percent, not even half of all homeowners use the deduction. Its principal beneficiaries are affluent homeowners, and its benefits, as Brannon says, “scale up” regressively: The larger the mortgage and the higher the tax bracket, the more valuable the deduction is.

Perhaps the deduction’s net effect is a higher rate of homeownership, which can benefit society by encouraging respect for property rights, the thrift necessary for a substantial investment, and a sense of having a stake in the community. But the unpleasantness of 2008 demonstrated the downside of encouraging too much homeownership. Furthermore, the deduction might actually suppress homeownership by being priced into rising housing costs.

Homeownership is, Brannon argues, a way for people to hold their wealth; it is not an investment because “it does not improve the productive capacity of the economy.”

The president has acted to discourage the use of Canadian wood when making planks for the rising edifice of American greatness. A 20 percent tariff on softwood imports from Canada — about 30 percent of the softwood lumber used in U.S. residential housing construction — is retaliation for Canada’s government supposedly charging Canadian lumber interests too little for trees harvested in government forests.

Dismayed U.S. homebuilders foresee a 6.4 percent increase; U.S. lumber interests say that is an exaggeration. Even allowing for theatricality on both sides, lumber protectionism will certainly deepen two problems: Because the mortgage interest deduction enables higher housing prices, Americans will continue to pour too much wealth into housing. And inequality will be exacerbated.

And there is this: The percentage of persons ages 25 to 34 who have never been married has risen from 12 in 1960 to 47 today. There are cultural as well as economic reasons for this delay in two powerful economic multipliers — family formation and house-buying — but certainly, the rising cost of housing is a factor.

Elimination of the mortgage interest deduction would have to be grandfathered for those who budgeted for their home purchases with the deduction in mind. Even so, it will not happen. People are lossaverse — they resist surrendering any benefit, even if they would reap bigger benefits from increased economic growth. And the political class is risk-averse, unwilling to challenge the affluent, or 1 million organized Realtors. The sound you hear is of mastiffs growling.