Here are my obsverations:
- The vast majority of income tax filers in the U.S. do not have sufficient mortgage interest to itemize their deductions rather than use the standard deduction. The majority of 1040 filers can not take advantage of this.
- The deductibility of mortgage interest lowers the cost of capital, and inflates housing prices by increasing the amount of financing buyers can obtain given a certain costs.
- Tax measures like this have unintended consequences. When president Reagan brought in tax reform in 1982, one of the stimulus packages was to lower the depreciable lives of property from 40 to 19 years. This created a boom in commercial and residential rental construction - and is one of the prime causes of the 1990's real estate bubble.
- Finally, once you bring in targeted tax cuts, you open up the Pandora's box and every little thing the electorate wants becomes a deduction or what not. This is why the 1040's in the U.S have become increasingly complex.