Most Inane Deduction? : Planet Money The mortgage interest deduction is popular, but it has numerous distorting effects on the economy – and economists also say that it does exactly the opposite of what people think.
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Most Inane Deduction?

The mortgage interest deduction is popular, even among people who don't claim it. It is widely believed to encourage and subsidize homeownership by allowing people to deduct the interest they pay on their mortgages. But economists tell a different story. They've been pointing out the problems with it for years, seemingly to no avail.

Until now. Last December, the Republican tax bill did two things to chip away at the deduction: it lowered the cap on the size of mortgages on which interest can be deducted, and it raised the standard deduction. These changes will have the effect of shrinking the number of taxpayers who claim the deduction and lowering the overall amount claimed.

Today on the show, we talk to Bill Emmons, a senior economist at the Federal Reserve Bank of St Louis, who takes us through the distortions and inefficiencies that the mortgage interest deduction inflicts on the economy. He also explains why the mortgage interest deduction actually does the exact opposite of what people think it does.

Links:

Scrapping a Subsidy to Homeowners

Fewer Tax Breaks For Homeowners: A Good Thing?

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