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Home, Deductible Home

We continue our celebration of tax day, which began with a plug for my book, with a plug for someone else's book: The Benefit And The Burden: Tax Reform--Why We Need It And What It Will Take, by Bruce Bartlett. I'm not really sold on the need for tax reform this year (more on that in my forthcoming TRB column), but The Benefit And The Burden is a wonderfully clear primer on the relevant issues and the history is behind them. A conservative architect of the 1981 Reagan tax cut who lost patience with his team during the George W. Bush administration, Bartlett calls bullshit on supply-side claims that the '81 cut boosted revenues. "The only metric that really matters is revenues as a share of the gross domestic product," Bartlett writes. "By this measure, total federal revenues fell from 19.6 percent of GDP in 1981 to 18.4 percent of GDP by 1989. This suggests that revenues were $66 billion lower in 1989 as a result of Reagan's policies." 

Like Bartlett, I favor elimination of the mortgage interest deduction, which sucks about $100 billion out of the coffers every year. (It's the third-biggest tax expenditure, after the exclusions of employer-provided health insurance and pensions.) I'm not sure right now is the best time to do it, given the shaky state of the housing market. But Bartlett makes a good case that whatever impact eliminating the deduction has on home prices will be a "one-time-only effect":

We know this because many other countries, such as Australia, Canada, Germany, Israel, and Japan, do not allow mortgage interest to be deducted, have homeownership rates comparable or even greater than those in the United States, and in many cases have seen historical home appreciation even greater than that in the United States. Great Britain abolished the deduction for mortgage interest in April 2000, yet housing prices rose more over the next decade than they did in the United States despite predictions to the contrary.

Interestingly, Bartlett concludes that tax reform probably isn't possible without a Republican president and a Democratic Congress. "In the postwar era, every serious tax reform--in 1969, 1976, and 1986--took place when there was a Republican president and a Democratic Congress," he writes. "The Tax Reform Act of 1986 is only a slight exception: there was a Republican president and Republican control of the Senate, but Democrats held the House of Representatives." Bartlett thinks you need a Republican president to give political cover to Democrats and "prevent his own party from throwing up insurmountable obstacles." This is part of a larger pattern in which Republicans do not permit the nation's business to be conducted except when they're in charge (and not always then). I feel less inclined than Bartlett to accept this as a fact of life. But anyway, read his book.