Economics is not an exact science. Some may even call it statistics, make it worse than lies and damn lies. We tend to see a lot of disagreement among prominent economists that all too frequently fall along political lines. This is disheartening, but it also means that when economists of all political stripes are in violent agreement on something, we should take note. I am not arguing that their consensus is necessarily correct, but geez it's pretty hard to ignore.
One of the things they like to tear down is real estate debt subsidy. In the US, this takes the form of the mortgage interest deduction. Many European nations have something similar. As someone who has owned real estate and received pretty sizable tax break from the deduction, I am here to tell you that I agree with the PhD's when they say this break should be repealed. I can say for the same reason why I can say I'd like to pay higher gas taxes if it means reduced carbon emissions: I sort of care what kind of world our children live in.
Tax breaks on real estate debt cost governments dearly. That means we better ask why we're doing it, whether the goal is a good one, and whether our chosen mechanism for achieving it is working. Why are we doing it? In the US, the mortgage interest deduction was introduced in 1913, when almost no one but the wealthy owned real estate. Indeed, at that time most real estate was owned by corporations and the tax was introduced as a part of policies to encourage business investment. For example, our government considered it a good thing if Ford decided to build a gigantic factory on the back of a tax break. That sort of thing was certainly more useful to the people who worked in those factories than giving those same people a tax break they could never personally use. Arguably, tax breaks on corporate real estate are smarter than other kinds of corporate subsidies because it is harder to game, especially in the days before Ponzi's descendants started running JP Morgan Chase. If you purchase or construct actual, honest-to-god, brick-and-mortar facilities, chances are you plan on using it.
After World War II, it seems that the tax was co-opted as a boon to the middle class. In encourages home ownership! And people who own homes are more likely to invest in their communities, raise stable families, and invest in their futures. That is so unlike the rest of us, who rent our abodes primarily so we can run away when the police find out we have been vandalizing park benches and beating children. Have you ever met a homeowner who abused his children or engaged in risky financial behavior? I didn't think so. There's also the added problem of economic change. People don't live in the same place and work for the same company for 40 years. They want to be mobile and go where their prospects are best. In the new economy, where there's no safety net and it's each person for him or herself, we're all 49'ers heading west. Why tie yourself down to a money trap?
Wait, it doesn't matter, because most of you don't take the mortgage deduction. Why would you when you get more money from the standard deduction? This is especially true these days, when the government is subsidizing on the other end with low interests rates. If you have a loan that is big enough to make the tax break worthwhile, chances are you don't need it. Chances are, it only puts a few hundred dollars more in your pocket than the standard deduction does anyway. Meanwhile, the government is running a deficit and spending more on this subsidy for the fortunate than it is on defense (estimate cost in lost revenue to the US is more than $500 billion. The aggregate figure for Europe is something like $700 billion). It better be worth it, but it ain't.
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