Save the Environment: Repeal the Mortgage Interest Deduction

August 23, 2007

In his recently proposed energy bill that would raise gas taxes and impose a carbon tax in an effort to reduce greenhouse gas emissions, Michigan Democrat John Dingell also took a shot at the sacred cow of tax policy: the deduction for home mortgage interest (MID). His proposal would call for the MID to be suspended for homes that exceed 3,000 square foot. From the Detroit News:

Powerful U.S. Rep. John Dingell revealed Tuesday new details of his plan to cut global warming, including adding a 50-cents-a-gallon tax on gasoline and ending the mortgage tax deduction on what he called “McMansions,” homes larger than 3,000 square feet.

Dingell, the auto industry’s staunchest defender in Washington, D.C., but a legislator who also has a strong environmental record, is faced with what he called the most difficult battle of his career, trying to persuade the country to accept fixes for greenhouse gases that will be unpopular and painful to people’s wallets.

As chairman of the House Energy and Commerce Committee, Dingell, a Dearborn Democrat, will be one of the handful of people who will attempt to guide Congress as it grapples with climate-change bills over the next couple of years. His committee will handle all global-warming legislation.

This plan is likely not going anywhere on Capitol Hill, especially with any provision that would cut back the MID, which would send the lobbyists of the Realtors and home builders into a frenzy. But it does bring up an interesting question of how the current MID system, which supposedly is designed to promote homeownership, can actually have negative externalities (i.e. pollution or greenhouse gas emissions) that likely exceed any positive external social benefit from marginally larger homes.

If we are truly trying to promote homeownership in general and not necessarily bigger homes, why should the tax savings be an increasing function of the costs of the house (and thereby the size)? Why not just have HUD write a check to each homeowner in America for $1,000 irrespective of the size of the home? But then again, that would expose MID for what it really is: welfare for homeowners and those in the real estate sector.

For more on why the mortgage interest deduction is bad tax policy, check out our previous blog posts here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, and here.


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