Tag Archives: taxes

My Housing Subsidy

It seems the new U.S. administration wants to make a major reduction in housing subsidies. From what I’ve read in the paper, though, it’s not planning to touch ours.

I’ve got to say that our subsidy is pretty generous. Last year my wife and I sold one apartment and bought another, and with it came a much bigger mortgage. Our monthly payments to the mortgage company went up — but our after-tax costs went down. The reason, of course, is that the U.S. tax code offers a generous deduction for mortgage interest, and lets us deduct our local property taxes from our income as well. By splurging on a more expensive property, we were able to cut our taxes quite a bit.

Looking at it another way, our government encouraged us to behave imprudently. Rather than having a relatively small debt that we could reasonably expect to pay off in a few years, we now have a relatively large debt that may well outlive us. Why the government should want us to go more deeply into debt is a puzzlement. I would not be shocked to discover that it has something to do with the lobbyists who ply their trade daily on Capitol Hill.

In my recent book An Extraordinary Time, I discuss the slowdown in productivity growth that has held back economic growth around the world for many years. I can’t help but wonder whether tax preferences for debts like my mortgage aren’t part of the story. While not all countries provide tax breaks for home mortgages, many countries do provide very favorable tax treatment to debt. In his excellent book Between Debt and the Devil, Adair Turner makes a persuasive case that such tax breaks encourage investment in existing real estate assets, which does nothing for productivity growth, rather than investment in the sorts of equipment and machinery that could make our economies more productive.

And then there is the matter of fairness. After finishing up our federal income tax return, I can report that the federal housing subsidy for my wife and myself is as large as the subsidies for some of the residents of the public housing complex near our home. Their subsidies are apparently on the chopping block because they are deemed government give-aways. Our subsidy, on the other hand, seems quite secure.