The home mortgage interest deduction should be eliminated in the United States

Housing Prices: My opponent claims that my source would have “obviously taken the actual elasticity rates into consideration when concluding that certain areas may loose as much as 10% of their housing values.” However, this assertion is downright wrong. My source stated that housing values would drop 10 percent only if “the housing stock is totally inelastic”. However, as I demonstrated in the last round, this is not the case. Interestingly, another study has estimated that housing prices would not change at all if the housing supply was infinitely elastic (1). However, this conclusion is just as implausible as the suggestion that housing prices would fall 10 percent. In reality, no goods are totally elastic or inelastic. Considering these facts, housing prices would probably decline slightly if the mortgage interest deduction was eliminated. However, this slight decline would have little affect on homeowners, especially if the mortgage interest deduction was phased out over a period of ten years (1). Economic equality: My opponent has admitted that the chart he presented in round two was flawed. He also conceded that, if the mortgage interest deduction was eliminated, “Higher income earners will be impacted more then lower income earners”. Americans' Net Worth: In the previous round I argued that Americans in the upper marginal tax brackets receive most of the benefit from the mortgage interest deduction. Thus, I alleged that the more expensive homes would experience the largest decline in prices if the mortgage interest deduction was eliminated. Meanwhile, houses owned by individuals in the lower and middle tax brackets would not decline in value very much. Thus, the cuts would not be "aimed at those who have lost the most", as my opponent claimed in round two. My opponent did not refute this argument. Instead, he suggested that increasing equality in net worth would not benefit lower and middle class Americans. However, this is a logical fallacy. Experts have highlighted several social and economic benefits of economic equality (2-3). Financial Responsibility: As I mentioned in the previous round, the mortgage interest deduction has encouraged several Americans to buy more expensive houses than they otherwise would have. Contrary to my opponents suggestions, this can indeed have disastrous consequences. For instance, let’s consider two individuals who are looking at purchasing a new home together. Pretend that this couple has narrowed their choices down to two homes. One of the houses costs $150,000. The other home, with slightly more square footage and a more preferable location, is valued at $200,000. Although the $150,000 home meets all of their immediate and future needs, they decide on the more expensive home. Part of their rational for this decision was the tax savings they would receive on the extra $50,000, which would make their monthly mortgage payments more affordable. However, when one of the two loses his or her job, the couple finds themselves in a financial bind. They obviously must continue to meet all of their financial obligations, including the $200,000 mortgage. Making matters worse, they also lose some of the benefits of the mortgage interest deduction. This is due to the fact that, with only one salary and possibly some unemployment, they find themselves in a lower marginal tax bracket. Clearly, the couple would have been better off if they had chosen to purchase the less expensive house. The home mortgage interest deduction has also encouraged Americans to make financially irresponsible decisions by providing an incentive for them to refinance or take out home equity loans. This is simply because home mortgages are the only personal loans on which interest can be deducted. By eliminating the home mortgage interest deduction, fewer Americans would refinance their homes in order to pay off debt and make large purchases. Thus, these citizens would make more financially responsible decisions and build up more equity in their homes. This could help prevent economic downturns, such as the one we currently are in the midst of. Therefore, my opponent’s claims cannot be correct. Eliminating the home mortgage interest deduction would indeed encourage Americans to make financially responsible decisions. This, in turn, would clearly benefit the economy. Income and Racial Segregation: As I’ve demonstrated previously, the home mortgage interest deduction encourages spending disproportionately among the wealthy. This fact led two Harvard economists to draw the following conclusion: “In essence, the home mortgage interest deduction acts to increase segregation by income. By creating incentives for the rich to spend more on housing, the home mortgage interest deduction creates incentives for the rich to live in fancier neighborhoods, which invariably means that the rich will tend to segregate more” (4). Clearly, eliminating the home mortgage interest deduction would act to decrease income segregation. This, in turn, could lead to a decrease in racial segregation and social cohesion. Concluding Remarks: Eliminating the home mortgage interest deduction will lead to significant increases in tax revenue. However, contrary to my opponent’s suggestions, this isn’t the only benefit of eliminating the mortgage interest deduction. Doing so would also reduce economic inequality as well as income and racial segregation. Furthermore, if mortgage interest was no longer deductible, many Americans would likely make more financially responsible decisions. As I’ve demonstrated throughout this debate, very little burden would be placed on homeowners, especially those in the lower and middle tax brackets. Furthermore, the long-term benefits of eliminating the home mortgage interest deduction largely outweigh the minimal short-term costs. Thus, there is practically no reason why the United States should continue to offer the mortgage interest deduction. Please vote pro! References: 1) http://www.urban.org... 2) http://www.bsos.umd.edu... 3) http://psych.mcmaster.ca... 4) http://www.economics.harvard.edu...