Eric Wiesen's Ideas

We need to end the massive, distorting subsidies for home-ownership, health care, and agriculture. These three subsidies together cost the federal government about $250 billion a year. All of them encourage behavior that is bad for the economy. The interest deduction on mortgage has encouraged the massive accumulation of debt that is at the heart of the current crisis. (No, it does not encourage homeownership. Neither Canada nor Britain has the subsidy, and both have slightly higher rates of home-owner-ship than we do.) Tax exemptions for employer-based health plans encourage overconsumption of health services—a point on which economists from both left and right agree. Agricultural subsidies, mostly handouts to large agribusinesses, are so egregious and market-distorting, one doesn’t really know where to begin.

Fareed, on defusing our looming debt crisis (via newsweek) (via mikehudack)

On the subject of the mortgage tax deduction, I cannot agree more. As Fareed notes, the argument in favor of the tax deduction is that it encourages home ownership. This claim is absolutely mindless an ignores even the most basic fundamental economics.

Perhaps in a freshman survey course in economics you might find credulous students willing to believe that creating a tax break for mortgage interest will simply result in people paying less to own houses. Even the sophomores (and, I suspect, the sharper freshmen) will likely retort, “but the sellers will KNOW that the buyers are now able to afford more. Won’t they just adjust prices accordingly so that buyers still pay the exact maximum they can, but on an after-tax basis?”

And this is, of course, correct. The only category of people who truly benefit from a tax shift of this nature are people who are paying off mortgages at the time the tax benefit is enacted. The reverse is also true - phasing the mortgage deduction out will adverse affect those who are paying off mortgages today (which is why the elimination of the deduction should be done in stages rather than overnight).

Make no mistake - the mortgage tax deduction does not make houses more affordable. It simply results in a secular increase across the board in all real estate prices in the exact amount of the tax benefit. It encourages debt (even more than Mogdiliani-Miller would suggest) and shifts capital into housing.

If there was no mortgage deduction all houses would be cheaper and the monthly nut on a given property would be almost exactly what it is today on a net-net basis. But our national deficit would be lower.

Source: newsweek