Jonathan Gruber may not have the best reputation for open and honest policy-making because of his role in creating ObamaCare, but he continues to provide interesting economic analysis. His latest working paper finds that the mortgage interest deduction does little to promote home ownership. Instead, it induces people to buy more expensive homes and take out more debt. This fits with previous research assessment.
The mortgage interest deduction has been a target of federal tax reformers for years, and was on Donald Trump’s list in 2016. The North Carolina General Assembly, however, considered bills raising the cap on deductible interest and property taxes this year. A better policy at the state and national level would be to reduce or eliminate the tax deduction on mortgage interest and offset the impact with lower taxes on other investments.