Excerpts from http://www.nytimes.com/2005/11/03/business/03tax.html


Reducing the tax code's subsidy to housing is a sound idea, many
economists say.

To begin with, the mortgage deduction diverts capital from other
industries by subsidizing investment in housing relative to other
economic activities.

Moreover, while the tax deductions were conceived to help people who
otherwise could not afford to buy a home, the principal effect today
is to encourage upper-income taxpayers to buy more expensive houses.

For all the talk of bolstering home ownership, the mortgage tax
deduction has done very little to help people into homes. The subsidy
to taxpayers implicit in the deduction has varied widely over the last
40 years, yet home ownership has drifted in a band of 63-69%. And home
ownership levels in other affluent countries without such subsidies
are generally no lower than in the US.

Instead, what the subsidy has done is encourage people to build and
buy bigger and more expensive houses. The deduction increases the
amount spent on housing, but it has almost no effect on the home
ownership rate.

Today, most of the mortgage tax advantages accrue to the rich. More
than 55% of the mortgage tax subsidy last year accrued to just 12% of
taxpayers with incomes above $100,000.

Low-income homeowners often do not claim the deduction, opting instead
to take the $10,000 standard deduction available to families.


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