[quote=patientrenter]FormerSanDiegan, if removing housing subsidies would likely reallocate capital to more productive activities (and I agree), then why shouldn’t we target getting that completed, and get a schedule with an end date, and make sure that each step we take is in the direction of the ultimate target, and not some other direction? That is a rational response.
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Excellent points. It is a concept worth considering. In order to map out how to get to point B we should consider how we got to point A in the first place, and how it operates under current law.
Part 1 – How we got here
Under Reagan in ~1986 many tax loopholes were closed (in conjunction with lowering tax rates across the board). This included eliminating interest deductions for many forms of interest. Mortgage interest was allowed to remain deductible. Prior to this change ALL forms of interest were deductible against income,including credit card interest, auto payments, whatever. This interest deduction has been present in the US Tax code since at least 1913.
So, the Government did not explicitly place the mortgage interest deduction into the code as a subsidy to homeowners. No sure this matters but at least now we know the history.
So, we could take the Reagan idea one step further and eliminate mortgage interest deduction. Perhaps at the same time lowering overall rates, so that those who would have been subsidizing see their savings.
