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Politics

Are tax breaks immortal?

Robert J. Samuelson on

It's a compelling case. You might think that the mortgage deduction's days are numbered. Perhaps they are, but it seems doubtful. The messy reality is that, regardless of its actual impact on the economy and personal housing decisions, millions of Americans believe they benefit from the deduction.

Start with all 76 million homeowners. If, as many economists think, the deduction props up real estate prices, then removing the deduction would likely weaken prices. This would help first-time buyers or those moving to bigger homes. But it would hurt home-sellers. It's hard to imagine many of them cheering the deduction's demise.

Next, consider that about 34 million taxpayers take the mortgage interest deduction, according to the Congressional Joint Committee on Taxation. Although that's only about a fifth of all tax filers, they're concentrated in the upper middle class. Roughly three-quarters of the richest fifth of Americans rely on the mortgage deduction to cut their taxes. They're bound to fear its loss will not be compensated by other tax reductions.

Finally, there are all the businesses that depend on housing: builders, real estate agents, mortgage brokers, furniture and appliance companies, to name a few. They have a stake in larger homes. Think higher prices, fatter real estate commissions, bigger mortgages and more construction.

Against this backdrop, it's not surprising that the House and Senate deal with the mortgage interest deduction differently. Although phasing out the deduction would be the best policy -- ending the housing subsidy -- the proposal before the Senate Finance Committee would preserve the status quo. In effect: Don't disturb this political hornet's nest.

Meanwhile, the House proposal would reduce the subsidy by allowing the interest deduction only on loans up to $500,000, a 50 percent decline from the current limit of $1 million.

Just how these opposite proposals can be reconciled is anyone's guess. But there is a larger point.

No matter how dubious or outmoded, tax breaks work themselves into the nation's economic and social fabric. They are hard to unravel, because people depend on them -- and protect them.

(c) 2017, The Washington Post Writers Group

 

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