When opponents of the mortgage tax deduction begin to hopelessly argue that it should be eliminated, proponents say that it's an important policy tool. Its supporters argue it must remain in place so that the government can continue to promote and expand home ownership. While it does, indeed, make buying a home more attractive, it wasn't created for that reason, argues Barry Ritholtz. He explains that it became law as a general effort by Congress to offset its new income tax about a hundred years ago:
As an offset for the taxes, any interest paid (for any reason) was deducted. These were considered business expenses. Indeed, taxes on rents from real estate was a large revenue source. The financing costs of purchasing such rent producing property -- a/k/a interest payments -- was a ordinary cost of doing business, and hence, deductible.
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