The Wall Street Journal has a write-up of a new study by the R Street Institute that looks at how the mortgage-interest deduction is taken zip code by zip code. Conclusion?
tax preferences, particularly the mortgage-interest deduction, have helped drive up the size of houses by as much as 18% in the nation's most affluent areas while not broadly encouraging people to buy homes. […]
the government's tax subsidies for housing "don't encourage homeownership in any meaningful way. People just end up buying larger homes," said Andrew Hanson, an associate professor of economics at Marquette University who conducted the study along with two other economists.
Reason's Anthony Randazzo and Dean Stansel were on this story 28 months ago, in a piece titled "The Upper-Class Entitlement: It's time to end the mortgage interest deduction." From that:
This longstanding incentive, which allows individual taxpayers to deduct up to $1.1 million in home loan–related interest payments from their taxable income, has warped the real estate market and overwhelmingly benefited higher-income Americans, all while failing to achieve its stated policy objection of promoting homeownership. […]
If [the] $1.2 trillion in itemized deductions was instead spread throughout the tax base, the average tax rate could be reduced by roughly a fifth, from 17.8 percent of taxable income to 14.5 percent. Such a tax cut would directly increase the reward for productive, income-generating activity. Closing loopholes such as the mortgage interest deduction while lowering overall rates would lead to a more productive economy.
Link via the Twitter feed of Neil King.