Tuesday, October 18, 2005

CSM calls for cutting the mortgage interest deduction

The deduction for mortgage interest is the "third rail" of tax reform. President Reagan tried to get rid of it in 1986, but real estate interests stopped him. Now, President Bush's tax advisory commission suggests limiting its use. Good idea, I say, and good luck.

The mortgage-interest deduction is bad economic policy. It encourages consumption, rather than saving. People take out big mortgages to free up spending money. (They convince themselves not to worry about all the borrowing because the interest on the loan can be tax-deductible.) An unhealthy economic incentive, the deduction is also expensive. It cost the Treasury $63 billion last year in needed revenues. The entire budget of the US Department of Housing and Urban Development was $35 billion.

Read more (and weep) in today's Christian Science Monitor.


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