The Politics of the Mortgage Interest Deduction
By Arnold Kling
Ed Glaeser is naive. He writes,
Wyden-Gregg option is to limit the mortgage deduction to exclude second homes, home equity lines, and mortgages over $500,000. Lowering the upper limit on the home mortgage interest deduction should appeal to progressives, who want less largess for the wealthy, and to small-government conservatives, who dislike public paternalism. Unfortunately, the demons of discord seem to have prevented either group from embracing the reform.
Pointer from Mark Thoma.
Glaeser sees the opposition to this reform in very superficial terms, as Democrats wrongly defending the “middle class” and Republicans wrongly opposing any tax increase. Glaeser ignores the elephant in the room, which is the housing lobby, and how lobbying works in general. If you are a lobbyist for the real estate industry, AARP, or public sector unions, you believe that any policy that could be construed as a defeat for your lobby must be killed.
For the real estate industry, the problem with giving in to Wyden-Gregg is that it would show weakness. Once we have been defeated once, the thinking goes, we can be defeated again. If our goal is to maintain the mortgage interest deduction, we must show that any attempt to trim the deduction, no matter how sensible and narrow, will result in devastating electoral punishment from the housing lobby.
What looks like a small, sensible reform to someone not involved in lobbying takes on enormous significance to the lobbying group. Thus, seemingly sensible reforms that both parties might support can be as difficult to enact as more comprehensive measures. Again, this is also true for trying to trim public sector employee compensation or for trying to reform entitlements. The lobbyists fight small reforms just as vigorously as they fight larger changes.