F#$% the Home-mortgage Interest Deduction

H/t to David Henderson for his link to this WSJ post from Hugh Hewitt on why, though he admits it is bad in theory, he thinks in practice eliminating the HID as the GOP seems to be posturing to do is a bad idea.

I’m here to put my stake in the ground in the “F!@# the HID”-camp.

Hewitt’s point is a little bit subtle, but to my reading basically boils down to two points:

  1. An immediate elimination of all or most of the HID would be unfair to recent homebuyers, or at least perceived that way.
  2. Eliminating the HID in such a way would harm the GOP.

I think its far more unfair to everybody in the country to continue a policy of economic distortion that tends to favor the wealthiest (and most creditworthy) than it would be to reverse such a policy. In fact, I would make the argument that the risk of HID elimination is priced into the market, and we would see even further distortions with a long range phase out like the kind Hewitt mentions.

There are far better ways to subsidize home purchasing than through a deduction that helps those with access to credit, which has increasingly been the very wealthiest.

In economic policy, it seems to me that ripping off the bandaid is almost always preferable to setting up a slow future change if only for the reason that most things that should happen in politics never do, and getting something done, even if the optimal solution was to do it over 10 years instead of 1, is better than the probability weighted chance that you get the optimal outcome versus, for instance, the next administration repealing your plan within 10 years.

Kevin Erdmann has a good post that touches on the HID as he discusses the arbitrary advantages that exist today for owning a home.

If eliminating the HID forces some people into homes they can afford with smaller mortgages, that will push prices down, which will be a benefit to renters, either through lower costs to buy a home or lower rents.

I do not find the argument persuasive that we should continue a policy that creates distortion simply because people have taken advantage of that distortion and would now be harmed if it were undone.

Leave a Reply

Your email address will not be published. Required fields are marked *