ArturoBandini wrote:Thought experiment - if you were designing tax policy today with a blank slate, would you include something like the mortgage interest deduction? What indirect effects might this policy have?
1. Preserve the personal income tax, and keep it progressive. However, the first, zero income tax bracket goes from no income up to the U.S. household mean. No distinction between sources of household revenue (i.e. salary, wages, tips, investment income, inheritance, "transaction fees," creating a "non-profit foundation" that owns all personal assets, or whatever latest dodge is currently enjoyed by Bain & Associates). Minimal or non-existent deductions depending on national quality-of-life factors (e.g. if no universal health care, then health care costs deductible). All deductions have sunset clauses, forcing them to be reconsidered regularly.
2. Preserve the corporate income tax (or "restore" it, depending on your point of view) to encourage investment and innovation and discourage speculation, acquisition-disection-curettage to boost stock market earnings, etc. Yes, I know some cases are in the eye of the beholder--so corporations have to make the case. This might mean deductions for capital investment, workforce training, etc. but because this is evidence-based reform, they have to prove they actually engaged in these activities or face tax penalties. Other deductions depending on national quality-of-life factors (eg., no universal health care and employer subsidizes employee health care, then those subsidies deductible). Sunset clauses for all deductions here as well. I would make corporate rates progressive, so major corporation don't end up paying 9% (or get a tax credit) while small businesses get shafted.
As for the mortgage interest deduction, I am agnostic. I see no problem with the government decided in the postwar era that encouraging private home ownership was a good thing to do, and I see no problem with using the tax code to try to accomplish this. The big problem with the mortgage situation in this country is not the mortgage interest deduction, but the abuse of the mortgage system by the banks, mortgage holding corporations, and brokerage houses. That has nothing to do with the mortgage interest deduction.