At 12:21 pm, in a mood of idle mischief, I fired the link, inviting comment from my colleague Dennis Ventry, whom I knew to cherish firm views on the topic. At 1:34 pm, my Blackberry began to smoke. Blowing away the brimstone, I read:
Okay, any questions?
Of course it's a social program. A poorly targeted, inefficient, and inequitable social program, but a social program nonetheless.
If the policy goal is to increase rates of homeownership (a dubious goal in its own right--rather, than, say, increasing the rates of shelter--but one we'll take as a given here), switching from a deduction to a credit would immediately increase the number of homeowners, as would-be marginal buyers (rather than those who'd own a home with or without the deduction/credit) make the tenure decision to own versus rent. Indeed, economists (i.e., except, perhaps, those working for the National Association of Realtors or the National Association of Home Builders) have found that it does not raise rates of homeownership (just ownership of bigger, more expensive homes).
The deduction's inefficiencies are legendary and numerous: distorts cost of housing relative to other investments; contributes to overinvestment in the asset class and misallocation of capital stock; artificially raises housing prices; raises unemployment (by decreasing labor mobility); destabilizes the national economy; encourages overconsumption of bigger, costlier homes; and encourages precariously high loan-to-value (LTV) ratios.
Finally, with respect to its inequities, the deduction disproportionately favors high-income TPs; distributes benefits unevenly across different regions of the country; and discriminates against minorities & low-income households. Moreover, it is the classic upside-down subsidy in that it provides 10x the tax savings for households with income exceeding $250K compared to households between $40K-$75K; provides no benefit to 65% of TPs claiming the standard deduction; provides no benefit to almost one-half all homeowners; no benefit to one-quarter of mortgaged homeowners; no benefit to renters; no benefit to low-income households; and only minimal benefits to middle-income and elderly households.