There's a nice article from Jeanne Sahadi about the mortgage interest tax deduction, the costliest tax break in America. The Yahoo! front page now has a link to it that says "America's best tax break." I lean closer to the view of Tony Vila, who writes, "it is the bads." Sahadi's article also had the nice chart at right, which shows how big a hole this deduction is cutting in the budget.
Obviously, this is a wildly regressive deduction. 75% of the revenue goes to filers with incomes over $100,000. 32% goes to households with incomes over $200,000 (though they account for only 11% of returns claiming the deduction). People can deduct the interest on loans up to $1 million, and on home equity loans up to $100,000. I don't see why we care about encouraging homeownership over renting in the first place, and I especially don't see what our interest is in helping people get tax deductions on home equity loans.
As Sahadi and everyone writing on the topic except Mark Calabria at CATO says, the homeowner lobby has enough political power that any attempts to seriously rein in this deduction are going to fail. The two ideas that come up in the article are (1) capping the deduction and (2) converting it into a credit. I wonder if we could at least clip off the home equity loan deduction bit, though that probably doesn't account for a whole lot of revenue.
I've heard a lot of people say that Congressmen's issue positions are determined primarily by the rich people in their district -- the donor class -- and not at all by the views of the bottom third of the income distribution. Renters, I'm guessing, are more concentrated at the bottom, and that's why the government has decided to systematically disadvantage them.