Popular Tax Break Just Helps Wealthy People Buy Bigger Houses

Today in Ways the United States Tax Code Benefits the Rich: a new study indicates that the politically popular mortgage-interest deduction is useful mostly for helping affluent people buy larger homes.

Most politicians love the mortgage-interest deduction, because it is seen as "promoting home ownership," which is seen as "promoting the American Dream," both of which are things assumed to be good until you think about them for a few minutes. Here is the actual outcome of the policy, via the Wall Street Journal:

The ZIP Code-level analysis of Internal Revenue Service data, conducted by a team of economists for the right-leaning R Street Institute, examined how tax benefits are distributed across income levels and major metropolitan areas. The study estimates that tax preferences, particularly the mortgage-interest deduction, have helped drive up the size of houses by as much as 18% in the nation's most affluent areas while not broadly encouraging people to buy homes.

A remarkably anti-progressive way for our government to squander money! "Encouraging people to buy homes" is a questionable policy goal on its own; subsidizing extra square footage in the homes of the wealthy is an unquestionably grotesque policy outcome.

Examples of better ways to help Americans with housing: build more low-income housing, give money to low-income people to get their own housing, make people with multiple homes give one of those homes to the poor.

[Photo: Flickr]