Scrap it, in a gradual fashion. It's deeply regressive - not only do (presumably better off) people with large mortgages get a big chunk of it, even on identical houses high income people get more of a break than low income people. What sort of logic says that a $150k house (lots of perfectly reasonable places for this in Baltimore) should cost less for someone making $175k a year (33% bracket deduction!) than it does for someone making $75k a year (25% bracket deduction)?

The larger purpose behind the mortgage INTEREST deduction, and PROPERTY TAX deductions going back to New Deal times, is about helping moderate income people (who actually have enough income) to better afford the purchase of a home.

But there were other expectations from this as well. The largest being that they would be stabilizing force in their community by staying put in that home and doing so for (at least) the full term of the mortgage. This pattern and expectation has changed and these points seem to have been lost along the way.

Many (most) wealthier people using a mortgage to purchase is a **choice** for them, a cash management tool rather than any sort of financial need let alone that the purchase is often just one more in a long laddering of investment as they have moved up in life. Good for them that they've gotten to that point but enough already.

So I tend to agree with CSN's points above. Some calculus relative to AGI might be reasonable but oi! do we really want yet another layered conditional aspect within the tax system?

The cure may be worse than the disease.

Sometimes politicians, journalists and others exclaim; "It's just a tax cut for the rich!" and it is just accepted to be fact, without questioning it. But what does that really mean?

Just in case you are not completely clear and/or do not understand this issue, the following should help, if you are a reasonable person.

Let's put tax cuts and deductions in terms everyone can understand.

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1...
The sixth would pay $3...
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until on day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20."Drinks for the ten of you now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill , and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking somewhere else where the atmosphere is friendlier.

Ah, Christmas, the season of tired parables.

In this case you suggest the rich (or high income, since that's what this part of the tax code is about) may play less in this market - meaning that they will buy fewer houses, or perhaps smaller houses, since that's what the marginal change in incentives is here. This is a loss to society how? The gains of neighborhood stabilization and the like mentioned above are most likely greater in middle-income and poorer areas (say, Better Waverley), than they are in, say, Guilford. What do we gain from subsidizing a home purchase to make it a worthwhile government expenditure?

You can argue that the point about bigger mortgages getting bigger deductions derives from a soak-the-rich perspective (which I'm ok with, as a staunch believer in redistribution), but making an identical house cheaper for a rich person than a poor one is soaking the poor. You can argue for that, but you had best be clear that that's what you want here.

Adam Smith strongly supported progressive taxation, referencing it multiple times, in detail, suggesting that rents should be taxed because the wealthy lived in larger homes, carriages should be taxed based on weight and grandeur, and explicitly stating that the rich should pay a higher percentage of their income than the poor. He justified this position by his assertion that the purpose of government is to defend the rights of those who have property (the rich), from those who do not have property (the poor)

Pick up a copy of the Wealth of Nations and stop getting your version of capitalism from Gordon Gecko, Goldman Sachs, and Rush Limbaugh.

The mortgage deduction helps to flatten and regress what is meant to be (or at least masqueraded as) a progressive tax system.

Martin,

Stop and think for a second, is everyone getting the same beer from the government? Do you think the police force is there to protect the poor the same as the rich? Do you think the poor use the same amount of roads, emit the same amount of pollution and cause the same amount damage to the environment as the rich? (Hint, not event close!)

Do you really think the poor would get a gigantic bail out when their business go up in flames?

Fundamentally, capitalism is based on those with capital (the rich) exploiting those without (the poor) through usury (now called investments or credit). This used to be immoral. There are only 2 ways of creating wealth: taking it out of the ground (farming and mining), and innovation through new technologies. Other stuff are just ponzi schemes. Why should people with just capital (the rich) who sit on their hands get even more wealth through no work?

Semiconscious- Just go move to Europe if you don't like the system here. Capitalism is what has created our envious standard of living. Even the "poor" in our country have a greater standard of living in most other countries. You want a system that redistributes wealth from those who produce to those that don't. If that were to happen, where is the reward when someone tasks a risk with their investment? Ever heard of risk/reward? No one will take the risk to innovate or start a new business if their reward will be taken away from them and given to those who do nothing. The "poor" could increase their standard of living if they made the right choices. How many "poor" people do you know with a college degree? Sure, going to college may not be a guarantee of success, but it does improve your chances. What's great about this country is that you have to work for what you earn. Nothing should be handed to you. You really think the "rich" don't do anything to deserve their reward? You think Mark Zuckerberg, while in college, didn't "deserve" to earn his fortune working for it ON HIS OWN? Or Bill Gates, who dropped out of college, to start Microsoft? If your system of rewarding the non-producers exists, there would be NO INNOVATION from investors. You would have a government run system. We all know how inefficient the government is. But maybe that is something you like. Take from those who earn it and give to those who don't. If you are "poor", what are you doing to improve YOUR situation? NOTHING!!!! Go to college and graduate. Get a job that pays a decent wage. Bring yourself out of poverty. You will be surprised how easy it is to make something ON YOUR OWN without needing to take from other people who want to make it ON THEIR OWN.

I dont like the deduction or any other for that matter. Deductions such as this and child tax credit revolve around life choices. Why should we favor one over another? Migrate the tax code to all consumption based tax, no income tax. No more tax returns, IRS, accountants, judicial nonsense. KISS.

Tax deductions are analogous to all the help and programs that are directed to foreclosed home owners. WHy do we care about the incumbant more that than the family that was formally priced out of the market due to over risk taking by the incumbent that drove the market up?
Goverment is here to protect us from foriegn invaders and build roads. It is not her to interfere with the capital markets.

And so the pendulum swings...

Jack,

Capitalism based on free markets is of course the ideal system, it allows everyone to engage in fair competition. But this is far being the case in real life, and definitely not the case in the US for many markets. If you read a bit of economics, you'll see that compensation does not reflect one's economic value, but one's scarcity. There's nothing wrong with that, except in many case scarcity is artificial. CEOs claim there's no one that can do their jobs, and therefore effectively blocks out a majority to fairly compete for their position. Perhaps fair competition is impractical, but it shows that there're a few that can leverage scarcity into unfair gains. Microsoft had outsized profits precisely because an artificially created scarcity. It turns out that capital markets love this kinds of unfair situation, you can reap enormous profits that way. If you think about it, it's anti-capitalism!

Economic theory has a solution, and it's through progressive taxation. It levels the playing field. You can argue on how it's done. But if you think fairness (as in fair competition) is good, then it's necessary. You have to allow a decent pool of competitors into the game, or the game will be of low quality. This is well known. If the rich keeps getting richer, than there is ever smaller number of competitors.

Capitalism or any economic system is complex, instead of reading sound bites and half truths, and follow party lines, I suggest you study up and arrive at your own conclusion.

Rich people aren't going anywhere!

They will continue to find ways to hide their money through trusts, loopholes, and legalease, but they aren't going anywhere, or they would have gone long ago.

Will they go to Mexico? Will they freeze in Canada? Will they deal with other political and social unease in other countries that take a far dimmer view of the protected rich in their countries? Heck, even the UK is starting to turn on them...Where will they go if they are taxed on the money that they will never spend in multiple lifetimes? Nowhere!

Couldn't agree more with elweedz.

I'm pretty sure that the 8th and 9th guy would be siding with the 10th and not allow him to get "beat up". And the 1st thru 5th guys wouldn't be hanging out and drinking beer with those guys anyway. Life isn't a parable. Stop fooling yourself to believe that it's you against the lazy. That's just not how it is. There may be some that milk the system but I'd argue that is true on either end of the spectrum. The whole world can't be capitalists. We need teachers, policemen, nurses, constuction workers, etc. Your parable is a very narrow minded view of the world and you'd do the world a favor if you'd let go of sophomoric arguments and join a real dialogue.