Tuesday, February 24, 2009

sacred cow home mortgage deductions?

Prof. Edward Glaeser of Harvard writes some very pointed comments on the home mortgage deductions in Killing or Maiming a Sacred Cow: Home Mortgage Deductions in today's New York Times

It's highly recommended reading and the articles he mentions would make excelllent choices for your end of term presentations.

The following excerpt particularly struck me:

Problem #3: The deduction is wildly regressive. The tax savings for households earning more than $250,000 is 10 times the tax savings for households earning between $40,000 and $75,000 per year, according to recent research by James Poterba and Todd Sinai.

If there ever was a case for small-government egalitarianism, then this is it. Eliminating the home mortgage deduction and replacing it with an across-the-board tax cut would equalize after-tax incomes without a single new government program.

Professor Glaeser's short essay does not even address the issue of regressivity relative to our VITA site clients, whose income is typically well below $40,000. Many of our homeowner clients get zero tax benefit value from their home mortgage interest deductions.

I believe the research Prof. Glaeser cites may be this August 2008 article by Poterba and Sinai, Income Tax Provisions Affecting Owner Occupied Housing: Revenue Costs and Incentive Effects. The Poterba Sinai article would make an excellent choice for your end of term presentation. I would be happy to discuss it with you if you are interested in the topic.

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