Mortgage interest deduction: a uniter or a divider?

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I agree with Will Wilkinson agreeing with Ezra Klein agreeing with Ed Glaeser:  the mortgage interest subsidy ought to go.  It's regressive, inefficient, and drives up the price and size of American homes without doing much good for our rates of homeownership--Canada, which has no deduction, does just fine at getting people into their very own abodes.

Will hopes that this represents the kind of good policy a liberaltarian can get behind:

Here's something, like trashing ag subsidies, you can get a lot of libertarians and liberals to agree on. It can be a bit disheartening to see just how little this kind of agreement amounts to when compared to the incentives of the politicans. (Iowa's extremely powerful Senators will die in the last ditch for our subsidies.) But I think this kind of wonk consensus building really matters over the medium-term. Democracy is not a mechanical cui bono machine and elite opinion can, when not coopted by the incentives of the parties, work as a countervailing force.

I hope he's right.  But I notice something:  what do Will and Ezra and I (and for all I know, Ed Glaeser) have in common?  That's right--none of us own homes.  And in the immortal words of Upton Sinclair, it's difficult to make a man understand something when his paycheck tax refund depends on his not understanding it.

In fact, I think the mortgage interest tax deduction offers a powerful object lesson in the difficulty of unmaking policy that turns out not to work as well as you thought it would.  When mortgages became common, and every time marginal interest tax rates rose, the tax deduction produced a windfall for existing homeowners.  Whenever there is a regulatory windfall, undoing the bad regulation means handing some group of people a corresponding loss.  Current homeowners bought their homes on the expectation not only that they would enjoy tax deductibility, but that they would be able to resell their house at a higher price because of the imputed value of the tax deduction to the next owner.  If you remove the deduction, most people will see a permanent decline in the value of their largest asset.

To a libertarian, this is a valuable cautionary tale:  we should assume that any program we introduce will be with us in approximately that form forever, because ending it will harm the beneficiaries.  Liberals are understandably unhappy with applying this lesson very broadly.  Which is one of the reasons I suspect that the mortgage interest tax deduction will outlive us all.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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