Wednesday, October 12, 2005

The Home Mortgage Deduction Myth

The Home Mortgage Deduction is -not- a subsidy. The HMID serves to remove the difference between business and private property treatment. Were the HMID to be reduced it would only serve to push the rich into complex tax avoidance schemes involving shell businesses holding title and the rich merely occupying the residence.

As long as the home mortgage interest deduction is viewed as a subsidy and not as the extra tax anti-investment burden it truly is there can be no rational housing policy debate.

The implication behind all this is that there exists outside of stated and revealed preference data a "correct size" for a residence. I'm as unwilling to presume such an arbitrary number as I am to presume the correct number of children. Face it, the two differ only in degree not kind. This is the steep part of the slippery slope that started with CAFE standards and gas guzzler vehicle taxes. People don't even blink at those anymore to the point that no doubt some will respond in anger.

McMansions are indeed a burden on neighborhoods and sometimes municipalities but they are burdens directly attributable to several new urbanist preferred outcome distortions and not some emotional gut response to any perceived excess. Tax policy isn't the problem or solution. West Germany used to tax propety based on the number of rooms, this led to homes with no closets which were classified rooms. The same avoidance schemes are the only predictable outcome of trying to control housing form.

Housing is a hybrid of both consumable product and investment and thus defies absolutist
claims of either characteristic. Any further attempt to seperate the two will also devolve into a game of tax avoidance. As much as the current no limits deduction is unfair it is also less unfair than any other possible alternative.

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