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The entire (expressly stared) reason to make mortgage interest deductable was to encourage more home ownership. You may disagree that that’s a desirable policy

The entire (expressly stared) reason to make mortgage interest deductable was to encourage more home ownership. You may disagree that that’s a desirable policy goal (and I might agree with you), but comparing it to some other payment that isn’t deductable misses the point entirely. Especially rent. Congress wanted to create an economic dis-incentive to being a renter and push people to own the homes they live in.

jsoc815 8y ago
> The entire (expressly stared) reason to make mortgage interest deductable was to encourage more home ownership. IIRC it was actually to encourage more borrowing so that the banks could securitize and sell off the loans. Increased home "ownership" was/is the altruistic reason presented to the public so that they feel good about the whole thing. Not looking to start an argument here, but there are plenty of other ways to encourage "ownership" that don't require encouraging debt peonage and market inflation. Also when credit cards were first becoming a mainstream thing, the interest on that was also tax deductible. I forget the specifics about why it was deemed acceptable to dispense w/that tax break.
- tzs 8y ago
  Both that and the encourage home ownership theory seem unlikely when it comes to why it was deductible in the first place. It became deductible in 1913, but simply because in 1913 all interest became deductible. The first $3k ($4k married) was excluded. Only the top 1% paid enough interest to take any deduction, and very little of that would have been mortgage interest because they usually bought their homes outright. Wikipedia claims that the reason they made interest deductible on personal income taxes was that in a nation of small proprietors the line is fuzzy between personal and business expenses, and it was simpler to just make it all deductible instead of just trying to allow business interest to be deducted. As for why credit card interest later became non-deductible, it is kind of the inverse of why mortgage interest is deductible. That is just as mortgage interest became deductible because all interest became deductible, credit card interest became non-deductible because almost all interest became non-deductible. The Reagan tax reforms took away almost all such deductions except the mortgage deduction. As to why Congress decided to save the mortgage deduction when they were killing all the rest--I have no idea. That was in 1986, when a lot more than the top 1% were taking it, and most homes were bought using mortgages, so both the "encourage home ownership" theory and the "encourage more borrowing to please the banks" theories are plausible, at least.
  - jsoc815 8y ago
    I appreciate your digging into this. The 1913 tidbit is an interesting wrinkle. I'd say, based on experience and conversations w/ elected officials, at the end of the day "encourage home ownership" is less likely to be a driver, but more so a selling point to the public. I also seem to remember reading in a number of sources, one of Michael Lewis' books comes to mind, is that Lew Ranieri (and friends) is a probable reason for the deduction's survival if, as you suggest, there was any real discussion about cutting the MI deduction. I can also tell you that NAR, for the more recent discussion about cutting the MI and SALT deductions would have been (and were) a significant factor in lobbying against changes that they would expect to slow sales. Externally, lobbying is talked about as some sort of corrupting force to be excised. Internally, it's simply considered to be an integral part of the legislative process. IMHO, people should attribute less to altruism decisions that are likely linked to someone's lobbying efforts. Thanks again.
CamTin 8y ago
Except it just makes it more difficult for people to actually own their home. Instead, it raises home prices by forcing people who would otherwise be happy renting in modest apartments or {du,quad}plexes into buying detached single-family homes in order to reap the mortgage deduction. And it's not like most of these mortgage holders are taking the loan for convenience's sake, to avoid selling off some art they're rather attached to, or their other home in Monaco. These are ordinary people who decide, based on this distortionary government policy, to take out 30 year loans that they really will need 30 years to pay off, if they can at all.

jsoc815 8y ago

> The entire (expressly stared) reason to make mortgage interest deductable was to encourage more home ownership. IIRC it was actually to encourage more borrowing so that the banks could securitize and sell off the loans. Increased home "ownership" was/is the altruistic reason presented to the public so that they feel good about the whole thing. Not looking to start an argument here, but there are plenty of other ways to encourage "ownership" that don't require encouraging debt peonage and market inflation. Also when credit cards were first becoming a mainstream thing, the interest on that was also tax deductible. I forget the specifics about why it was deemed acceptable to dispense w/that tax break.

tzs 8y ago
Both that and the encourage home ownership theory seem unlikely when it comes to why it was deductible in the first place. It became deductible in 1913, but simply because in 1913 all interest became deductible. The first $3k ($4k married) was excluded. Only the top 1% paid enough interest to take any deduction, and very little of that would have been mortgage interest because they usually bought their homes outright. Wikipedia claims that the reason they made interest deductible on personal income taxes was that in a nation of small proprietors the line is fuzzy between personal and business expenses, and it was simpler to just make it all deductible instead of just trying to allow business interest to be deducted. As for why credit card interest later became non-deductible, it is kind of the inverse of why mortgage interest is deductible. That is just as mortgage interest became deductible because all interest became deductible, credit card interest became non-deductible because almost all interest became non-deductible. The Reagan tax reforms took away almost all such deductions except the mortgage deduction. As to why Congress decided to save the mortgage deduction when they were killing all the rest--I have no idea. That was in 1986, when a lot more than the top 1% were taking it, and most homes were bought using mortgages, so both the "encourage home ownership" theory and the "encourage more borrowing to please the banks" theories are plausible, at least.
- jsoc815 8y ago
  I appreciate your digging into this. The 1913 tidbit is an interesting wrinkle. I'd say, based on experience and conversations w/ elected officials, at the end of the day "encourage home ownership" is less likely to be a driver, but more so a selling point to the public. I also seem to remember reading in a number of sources, one of Michael Lewis' books comes to mind, is that Lew Ranieri (and friends) is a probable reason for the deduction's survival if, as you suggest, there was any real discussion about cutting the MI deduction. I can also tell you that NAR, for the more recent discussion about cutting the MI and SALT deductions would have been (and were) a significant factor in lobbying against changes that they would expect to slow sales. Externally, lobbying is talked about as some sort of corrupting force to be excised. Internally, it's simply considered to be an integral part of the legislative process. IMHO, people should attribute less to altruism decisions that are likely linked to someone's lobbying efforts. Thanks again.

CamTin 8y ago

Except it just makes it more difficult for people to actually own their home. Instead, it raises home prices by forcing people who would otherwise be happy renting in modest apartments or {du,quad}plexes into buying detached single-family homes in order to reap the mortgage deduction. And it's not like most of these mortgage holders are taking the loan for convenience's sake, to avoid selling off some art they're rather attached to, or their other home in Monaco. These are ordinary people who decide, based on this distortionary government policy, to take out 30 year loans that they really will need 30 years to pay off, if they can at all.