Jonathan Chait

HUD Secretary Bold, Possibly Idiotic

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Reducing or eliminating the home-mortgage tax deduction is one of those reforms that economists across the political spectrum agree on, but politicians across the political spectrum flee from. So this is either a terrible gaffe or an interesting trial balloon:

Housing and Urban Development Secretary Shaun Donovan said today that modifying the home interest deduction could satisfy two objectives: reducing the deficit and rebalancing federal housing policy.

But he also made clear that the Obama administration isn’t actively considering, much less endorsing, such a step, which could affect millions of homeowners. Some out 40.8 million tax returns claimed the home interest deduction for 2007, according to the Tax Foundation.

Discussing the housing crisis with reporters at a session sponsored by Third Way, a center-left think tank, Donovan offered some thoughts about whether housing policy had been too skewed toward promoting home ownership, given the number of foreclosures. A more balanced approach, he said, would also focus on the needs of renters and new ways to help them.

Asked whether the government should consider modifying the mortgage interest deduction, he made two points. He said that home ownership is a good thing but that officials may need to rebalance the incentives for owning compared to renting. He also said the president’s deficit reduction commission will be “looking broadly at a range of options.” This deduction, he added, is “a significant enough expenditure” that it will surely be looked at.

In 2009, the tax break cost the government $79.4 billion. That’s expected to grow to $149.6 billion by 2015.

This would be one hell of a big reform, but I'd be stunned if it happened.

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