Kevin Drum is right that the bad distributional consequences of the home-mortgage-interest tax deduction could be partly fixed by lowering the cap on the size of the the mortgages covered. But of course that would also harm residents of high-housing-price areas, who are already over-taxed compared to residents of lower-housing-price area, since to maintain a given standard of living in an expensive area means earning a higher income than would be required to maintain that same standard of living in a lower-housing-price area. In general, the federal system redistributes income toward the (mostly Republican) voters who live outside the big cities. It wouldn’t be technically hard to do a cost-of-living adjustment to income taxes, as we now do to federal employee salaries, but it would be politically impossible. In the meantime, I’m wary of further screwing over New York for the benefit of Kansas.
Footnote Limiting mortgage-interest deductibility also benefits those rich enough to pay cash for their housing. The technically right way to handle problem is to leave the interest deductible but treat what would be the value of owner-occupied housing as income to the owner. That’s a complete non-starter, for administrative as well as political reasons, but that’s the right baseline for comparison to actual proposals, in that it would equalize treatment between renters and owners and between owners-for-cash and owners-with-a-mortgage.