Ed Glaeser says it’s time to kill – or at least maim – the tax deduction for interest paid on mortgages.
The Great Depression provided an opportunity to rethink old policies in a major way. In the current morass, everything should, once again, be open for debate. One sacred cow that has long been in need of a good stockyard is the home mortgage interest deduction. So, in the spirit of libertarian progressivism, I suggest gradually reducing the upper limit on the deduction to loans of up to $300,000, and then refunding the tax revenues in a more productive manner.
He’s right – especially on the broadest point. Do away with the mortgage interest deduction. But the reset provides the opportunity to really rethink and restructure the housing system more broadly.
The only way toward long-run and sustainable recovery is a dramatic change in where and how we live. What ultimately got us out of the Long Depression of the late 19th century and the Great Depression of the 1930s wasn’t just new technology, or creative destruction, or government spending, it was a phase-shift in the way we live – in our economic geography. The recovery after the Long Depression took shape around the rise of the industrial city and its streetcar suburbs. The recovery after the Great Depression was powered by suburbanization. We need a massive shift not just in our infrastructure but in our housing system.
The reform and restructuring of the housing system needs to be much deeper and go much further than reigning in the mortgage interest deduction. We need to bring our mortgage-lending practices into line with those of other advanced countries, like Canada or Sweden or most of Europe. That means much larger downpayments and penalites on prepayments; shorter term loans; and all the rest – just like my very own mortgage in Canada. Sure that means increased cost and shared risk, but it comes with a much more stable housing market (where you can still get a mortgage and buy and sell homes) and a much more stable banking system. And we have to encourage other forms of housing tenure, like renting, which are in sync with the labor market flexibility and residential mobility the adavnced creative economy requires.
February 25th, 2009 at 1:00 pm
Eliminate the deduction for anything other than your primary residence, and slowly phase it out.
But at a time when the government is pumping up Fannie and Freddie, this seems counter to the current direction in housing. We’re trying to build up home ownership, not tear it down.
February 25th, 2009 at 3:41 pm
I think most people could understand limiting deductions to a primary residence, and setting an upper limit on mortgage deductability. As Buzzcut says, phase this in so people can adjust. I hadn’t known that other countries structured mortgages differently until it showed up here, but why not if it makes the system more stable?
And another reminder, the Google ads for grants and stimulus checks on the right are scams. I don’t know why Google doesn’t limit them, but since they don’t these show up on lots of respectable sites.
February 25th, 2009 at 8:29 pm
Quote: “penalties on prepayments”
Why must this be legislated? Can’t this be negotiated in the terms of the loan? If you want early-repayment-privilege then you must pay a higher interest rate.
February 26th, 2009 at 1:11 am
Google and Facebook are guilty of accepting scam ads
see Facebook took ads for get-rich-quick scam in http://www.smh.com.ua
Walter Derzko
Smart Economy
Toronto
February 26th, 2009 at 5:45 am
Google is a rubbish company but still gets all the praise and pundits for being “creative” – morality, ethics and creativity: where do the creatives stand? – that’s a title for a Masters dissertation somewhere in the world I hope.