THERE ARE 74 MILLION HOMEOWNERS in the United States, and if they could find an issue they all agree on, they would be the most powerful voting bloc in the country. So President Bush's tax reform commission deserves credit for taking aim at the thing this group holds most dear: the home-mortgage tax deduction.
The presidential advisory commission has been studying tax reform for months, and on Tuesday it made a startling proposal: The cap on mortgage debt eligible for a deduction, which stands at $1 million, should be lowered.
Targeting the mortgage deduction is admirable, if politically unlikely. The deduction exists because of a deeply held conviction that owning a home is the ultimate expression of the American dream and that it makes people better citizens. But there are aspects of the tax code that do nothing to spur homeownership and may actually discourage it.
Buyers can deduct the interest paid on mortgages for second homes, for example, which simply encourages real estate speculation, drives up prices and shuts out other buyers by restricting the supply of housing. They can also deduct the interest paid on home equity loans, which aren't always used for home improvements; if a person finances a car with an equity loan, how does that encourage homeownership? And one can argue that home prices currently reflect the mortgage interest deduction, so without it, home prices would fall -- and the lower prices would make up for the loss of the deduction.
