The mortgage interest deduction is a stick used by the government to encourage a specific behavior - home ownership. It may be a velvet covered scented oil laced stick that beats the middle and upper classes to pay more for housing than they should, but it is still a stick. And like all government actions, has unintended consequences - new home builders are the greatest beneficiary, not really home buyers...
The concept that tax avoidance is somehow wrong... is, well, wrong. A government is not entitled to any and all income or property that the citizens enjoy. It is entitled to just enough to perform those minimal functions that will lead to a safe and just environment for the citizens to conduct themselves (most specifically national defense and an honest judiciary and law enforcement). And if the government chooses to encourage a behavior (home ownership / employer sponsored health insurance / etc.) via the tax code, so be it... so long as the encouragement is reasonable and not discriminatory.
And if wealth redistribution is the real intended end of any tax scheme, in the end that scheme will fail. The scheme will run out of 'other-people's-money' to redistribute and bankrupt itself trying to deliver on promises made to provide 'free-lunches-for-all.' See Greece...
What differentiates the USA from Greece? In the USA, right now people actually pay their taxes for the most part. The USA tax code is convoluted and corrupted, but not by too much yet. In Greece, if you pay your taxes you are considered a sucker. When the tax law in the USA is sufficiently corrupted, the citizens will stop paying (all) of their taxes. More business will be driven to the black market and everyone will accept this outcome as reasonable as it is in Greece. Unfortunately, just as when the citizens of the USA ignored the Eighteenth Amendment and the Volstead Act (prohibition) it lead to a disrespect for the rule of law, once our tax code is sufficiently corrupted and confiscatory it too will lead to a disrespect for the rule of law and people will begin to ignore it in mass. Once that happens, the government becomes just another 'gang-of-thugs' looking to collect their tribute.
The concept that tax avoidance is somehow wrong... is, well, wrong. A government is not entitled to any and all income or property that the citizens enjoy. It is entitled to just enough to perform those minimal functions that will lead to a safe and just environment for the citizens to conduct themselves (most specifically national defense and an honest judiciary and law enforcement). And if the government chooses to encourage a behavior (home ownership / employer sponsored health insurance / etc.) via the tax code, so be it... so long as the encouragement is reasonable and not discriminatory.
And if wealth redistribution is the real intended end of any tax scheme, in the end that scheme will fail. The scheme will run out of 'other-people's-money' to redistribute and bankrupt itself trying to deliver on promises made to provide 'free-lunches-for-all.' See Greece...
What differentiates the USA from Greece? In the USA, right now people actually pay their taxes for the most part. The USA tax code is convoluted and corrupted, but not by too much yet. In Greece, if you pay your taxes you are considered a sucker. When the tax law in the USA is sufficiently corrupted, the citizens will stop paying (all) of their taxes. More business will be driven to the black market and everyone will accept this outcome as reasonable as it is in Greece. Unfortunately, just as when the citizens of the USA ignored the Eighteenth Amendment and the Volstead Act (prohibition) it lead to a disrespect for the rule of law, once our tax code is sufficiently corrupted and confiscatory it too will lead to a disrespect for the rule of law and people will begin to ignore it in mass. Once that happens, the government becomes just another 'gang-of-thugs' looking to collect their tribute.
Additionally, it seems people are still generally confused and/or have fallen for conventional wisdom. To call Mortgage Interests Deductions a form of "wealth redistribution" implies that a medium is taken from one particular group of people and given to another. That is simply not what is happening, so lets not even call this wealth redistribution. Also this is not a subsidy, because tax deductions cannot be subsidies. Lets call them simply what they are: a deduction or "loophole" as people prefer (although loophole is incorrect as well because that would imply that this law isn't in the book).
Aside from the answers already given, there are plenty of ridiculous claims regarding this tax break. We are told that these tax breaks creates a distortion in the market place. This distortion will effect home prices because it encourages people to buy homes, and for this reason this tax break must be repealed. Except no one ever comes up with a simple answer to this question: How will a tax break effect home prices or the real estate market? The simple answer to that question is that it doesn't.
There is nothing bad or distorting about people spending their own money on things that they love and want, in this case is their homes. All mortgage interest deductions do is make the purchase more inviting as oppose to the higher priced alternatives. If we are really considered about subsidies and wealth redistribution then why don't we get rid of all subsidies and wealth redistribution programs created by the federal government to support home ownership. Starting from Fannie and Freddie and working our way towards the FHA and possibly stopping at HUD.
There are people who believe that renting is only for suckers. In this instance if buying is so much more superior to renting, then the market would reflect this. Eventually, more and more people start buying property to qualify for the tax advantage than they do renting apartments. This happens until rental rates fall until people are generally indifferent about renting or buying (following the laws of supply and demand). In a way, the landlord is offering a tax deduction to his/her tenants in the form of lower rents. Why would we want to hinder this? We can make renting more attractive without the repeal, since the repeal actually means a tax increase on home owners, which would make home ownership less attractive and then we are back at square one again...
Also if people are more worried about single-family homes being purchased more than apartments then simply introduce a deduction for rental apartments. This way, there is no financial advantage towards renting than there is over buying houses. But the fact that no one has ever thought of this just shows that this is is not about the deduction nor is it about the wealthy. It's simply about helping the Government collect more revenue.
The "fairness" argument against tax deductions is the worst kind of utopian, egalitarian nonsense. Deductions shouldn't be repealed. People should work to see that more and more people enjoy them.
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