I’m a home owner.  Actually, I’m not really, but our society has decided to make out-right ownership of property and the assumption of long-term mortgage obligations synonymous.  Anyway, that to say that I think that abolishing the mortgage interest tax credit might be a necessary step toward keeping America economically healthy.

It pains me to say what I’m saying because I benefit tremendously from this tax credit.  For those who are unaware, mortgage interest (basically the entirety of what anybody pays for the first half of the mortgage) is tax deductible.  This is a pretty big deal, but as I was reflecting on taxes and the unintended consequences of taxation, I began to question the value of this credit in our society at large.

While I believe that taxes are mostly a bad thing (so-called “use” (gas) taxes included) I don’t necessarily advocate every little thing that relieves the public from the burden of taxes - especially when those things don’t even have the potential to benefit the society at large.

And far from simply being a benefit to a narrow portion of our society, I see mortgage interest tax credits actively working against the interests of everyone in our nation, whether or not they realize it.

Economics 101 teaches us that one of the fundamental steps to building wealth is the ability to leverage equity.  Persons with equity (primarily in the form of property in our society) are able to provide assurances to others who would speculatively provide capital or labor - there is a guarantee that in some way or another compensation for goods or services will be provided (even if that means taking over the equity/property).

So property ownership is important and valuable - it provides its own rewards.  Yet we have now provided additional rewards for property ownership, in the form of tax breaks, to further increase the motivation for property ownership.  Does this have consequences?  I think it does.

Demand for property now exists in several forms beyond simply having a place to keep your stuff.  There are those who speculate in property, those who accumulate property for rentals and others.  The wealth-multiplying effect of mortgage interest tax breaks allows individuals with more property to hide more and more wealth while making more and more money - in turn allowing them to increase their consumption of property.  Sit on this trend long enough and what happens?  Housing prices begin to rise in accordance with demand, pricing lower income individuals out of the market for equity, while simultaneously increasing the equity held by the wealthy.

So it’s a rich get richer, poor get poorer deal - but even the rich aren’t better for it.  If the relatively poor in our society have no equity, the rents that they will be able to pay will never increase substantially, leaving the rich with an investment that grows at the rate of general wage growth - probably not what they had in mind.

And lets not forget the poor in this scenario.  With no equity to leverage into wealth, they will continue to be under-spending, under-producing members of a society based around massive consumption and production.

Sanity has to take hold in Congress before laws to make taxation more reasonable can be put into effect, and you’d be ill-advised to hold your breath for that.  Still, I think that taxes of all sort, including tax breaks, need to be carefully considered in the light of their intended and unintended consequences.  We’re doing ourselves no favors giving advantage to the rich or the poor.  Rather, let’s level the field.