The New York Times has today an article describing how the last attempt at a tax reform in the United States included provisions that would rectify some of the absurdities coming from the tax deductibility of mortgage interest. This is obviously a political hot potato, but nevertheless I call for the abolition of this deductibility. Make it gradual if you want, but it has ultimately to go. Here is why.
Mortgage interest deductibility is regressive, as it favor rich house owners. That is bad. This deductibility discourages savings, as it encourages getting into debt. That is bad. Arguably, it also encourages holding assets, which is good, but it encourages holding the wrong assets, and this is particularly bad.
This political goal that every American should own his/her home may make sense for politicians, who dislike volatile populations that are not attached to a region. Once home owner, a voter becomes more conservative and favor the status quo. But let us put the interest of the politician aside and think about the home owner.
A household typically earns labor income in the very region where it is living. That income is risky: one may lose a job, one may face a pay cut, etc. How could this risk best be diversified? By holding assets with a return that is negatively correlated to one's labor income. Local real estate is not such an asset. Imagine a local business closing down: labor income is lost and because of this local real estate prices are down as well! A double whammy for the local home owner.
The solution: rent locally, own globally, in real estate and other investment vehicles. How do you encourage that? Lower taxes on investments in general, but certainly not by subsidizing mortgages in local housing.
PS: For the light (or scary) moment: Swimming at the edge of the Victoria Falls.