Robert J. Samuelson: Are tax breaks immortal?

J. Scott Applewhite, Associated Press

House Ways and Means Committee Chairman Kevin Brady, R-Texas, center, is interviewed as takes a break from the debate over the Republican tax reform package for a vote in the House, on Capitol Hill in Washington, Wednesday, Nov. 8, 2017.

WASHINGTON — If you want to understand why the tax code is so hard to overhaul, consider the case of the mortgage interest deduction. The issue is so sensitive that the House and Senate are dealing with it in completely opposite ways.

To its many defenders and beneficiaries, the mortgage interest deduction symbolizes and subsidizes the American dream. It promotes homeownership, which gives people a stake in stronger neighborhoods and safer streets. And, of course, homeownership is the ticket to the middle class.

By allowing homeowners to write off their mortgage interest expenses — thus reducing their taxes — the government purportedly encourages all these good things. The cost in lost tax revenue is considered money well spent. In 2017, that would be $64 billion, according to the Office of Management and Budget.

Case closed? Not exactly. For years, many economists have argued that the standard narrative about the deduction is mostly a self-serving fairy tale. The reality, they say, is that the subsidy promotes oversized homes and higher real-estate prices. Upper-middle-class households are the main users of the deduction, which barely — if at all — raises the homeownership rate.

“People are being bribed by the government (through the mortgage interest deduction) to buy exceptionally big homes,” says economist Jonathan Gruber of the Massachusetts Institute of Technology. In effect, there’s a subsidy for McMansions….

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