It is reasonably clear at this point that the GOP tax cut plan will retain the mortgage interest deduction. Here are the pros and cons of that approach, from my perspective:
Pros
1. It is appropriate for the tax code to promote home ownership, because home owners are more vested in the community and are thus better citizens than more transient renters.
2. Eliminating the deduction will cause home values to fall, thereby making millions of Americans poorer. The last time that happened, the economic result was disastrous.
3. The deduction creates a mild stimulus to construction, which in turn provides jobs at decent wages for just the kind of people who have been struggling.
Cons
- Would reducing home values and thereby making housing more affordable be such a bad thing?
- Encouraging Americans to put their money in housing, as opposed to other assets, is an unjustified intrusion into the market that has, in the past, promoted damaging real estate bubbles.
- Encouraging home ownership has reduced the mobility of labor and thus damaged the economy.
To me, this is a fairly close argument. If it were up to me, I would probably support a slow phase-out of the deduction as a compromise, but, of course, it isn’t up to me.