Re:Don’t Tell Your Friends They’re Lucky
by bzbarsky on Thursday January 19, 2017 @09:55PM
(#13441448)
The main reason for the mortgage interest deduction is that for corporations various expenses (like interest on debt) are in fact deductible from income for tax purposes, because we tax profits, not revenue.
So if there were no mortgage interest deduction for individuals that would simply be incentive for people to form a corporation they are sole shareholders for, for the specific purpose of buying the home. This would be especially true for people who are contracting or otherwise self-employed anyway and hence can have totally legitimate income for this corporation...
Now having the mortgage interest deduction but no imputed rent income due to the owner-occupancy, that part is arguably weird.
Additionally, it makes paying cash for a home unrealistic, making the housing market (more) dependent on banks and their attendant federal regulations. Over time this has had numerous negative effects on land use patterns and urban health by encouraging car-oriented sprawl and devaluing urban mixed-use neighborhoods. There's also the whole race-based redlining thing. The worst of these policies have been mitigated in the recent past, but they still pose obstacles to certain kinds of development (that are highly desirable lately) and would not have existed in the first place without government intervention in home mortgages.