Mortgage Deduction is Anti-Poor, Anti-Green

Pres Bush's Tax simplification team came back and suggested redoing the way that it works. For some reason Americans are in love with this tax break. Personally, I think it discriminates against the poor and the environment.

For all the talk of bolstering home ownership, said Edward L. Glaeser, an economics professor at Harvard, the mortgage tax deduction has done very little to help people into homes. He said the subsidy to taxpayers implicit in the deduction had varied widely over the last 40 years, going up and down with the fluctuation of inflation and interest rates. Yet home ownership over the period has drifted in a band of 63 to 69 percent. And home ownership levels in other affluent countries without such subsidies are generally no lower than in the United States.

Instead, what the subsidy has done is encourage people to build and buy bigger and more expensive houses. "The deduction increases the amount spent on housing," Mr. Glaeser said, "but it has almost no effect on the home ownership rate."

Bigger houses means anti-green. The larger the house the more negatively it affects the environment. They take more energy and resources to build and to heat/cool and maintain. Large houses are the SUVs of the housing market (hmm, would be interesting to compare the environmental impact of downgrading from a large house to a small house vs. changing from a Hummer to a Prius, ahh for another day).

Today, most of the mortgage tax advantages accrue to the rich rather than struggling first-time homeowners. More than 55 percent of the mortgage tax subsidy last year, according to the Congressional Joint Committee on Taxation, accrued to just 12 percent of taxpayers with incomes above $100,000.

Low-income homeowners often do not claim the deduction, opting instead to take the $10,000 standard deduction available to families. Turning the deduction into a tax credit would equalize its value and make it available to more people on the lower end of the market.

And here we see that the tax discriminates against the poor. For all the yelling the Democrats did on Bush's tax cuts for the rich, where are they with this tax break which disproportionately favors the wealthy?

Via NY Times