“Mortgage interest deduction loophole?”
    What loophole?

Deducting mortgage interest isn’t a loophole; not paying tax on the rent you save by owning a house is.

Jane Galt quotes the Wall Street Journal as attacking the “mortgage interest deduction loophole.” That looks to me like shooting at the wrong target.

The fact that interest received is taxable as income, but interest paid is deductible only with limitations, seems like a strange bit of policy. That mortgage interest on a primary residence is deductible under all circumstances is just one more twist to the strangeness.

The egregious tax loophole is the non-taxability of the imputed rental income on owner-occupied housing. A renter has to pay income tax on the money he earns to pay the rent, but a homeowner pays no tax on the money he saves by owning.

If we eliminate the mortgage interest deduction, we make owner-occupied housing more expensive for those who have to borrow to buy it, but not for those who can pay cash or who bought a house on a mortgage and have now paid it off.

There’s a case to be made for giving less favorable tax treatment to homeownership, but if we’re going to do that we might as well do it right, rather than just making life harder for people with decent incomes but little wealth who live in cities with big real estate prices.

That’s especially true because the existing income tax system, by not adjusting tax brackets for the local cost-of-living, already penalizes the dwellers in high-rent cities.

P.s. Sorry about the light blogging recently; I’ve been in a deadline crunch, now blessedly almost over.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com