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Saturday, August 25, 2012

Equity, improve investment and reduce the mortgage interest deduction

This is a follow up on my post of 8/23/12 on various reasons to reform (and reduce) the mortgage interest deduction. In June 2012, the OECD (Organization for Economic Co-operation and Development) issued an Economic Survey of the United States. Per an OECD summary:

"The Survey also highlights rising income inequality in the United States. The trend owes mainly to rising skill premiums and disproportionate income growth for top earners over the past two decades. ... Providing equal access to high-quality elementary and secondary education is essential to addressing this challenge. The Survey also notes that the U.S. tax and benefits system is much less effective in reducing relative poverty than that of other OECD countries. This is largely the result of the limited and poorly targeted financial transfers to low-income households. The Survey suggests that broadening the tax base through reduced tax expenditures, such as for mortgage interest, as well as harmonizing the tax treatment of different forms of capital income while simultaneously lowering the corporate tax rate could help to reduce income inequality and at the same time boost investment and long-term growth."

I suspect that the mention of the home mortgage interest deduction as one tax expenditure to be reduced is because the deduction is broader than in other countries and a significant cost in terms of reduced tax liabilities less than 1/3 of individuals get due to the deduction. The cost is about $90 billion per year which, along with dollars from other reduced tax expenditures could be used to reduce the deficit, provide more equitable benefits, such as to education as suggested by the OECD, and improve investment in other industries (besides housing) by equalizing the after-tax cost of all types of investments.

What do you think?


Charlie Ward said...

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Blue Tax said...

It will be interesting to see what kind of solution they come up with to please everyone. Thanks for sharing.

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