Daniel Indiviglio, The Atlantic

I just complained about how the government does too much to prop up some industries. Perhaps the most obvious example of this over the past few years has been residential real estate. Washington bailed out Fannie and Freddie, offered a home buyer tax credit and spent billions to prevent foreclosures, to name just a few of numerous tactics used to prop up housing. Another way it has done this for nearly a hundred years is through mortgage interest deduction. By allowing taxpayers to deduct their mortgage interest from their taxable income, they have a greater incentive to buy a house. Is this a good idea?

An article by Agnes Crane from Reuters Breakingviews argues against this concept today, and I largely concur with her analysis. I don’t see any compelling practical or even philosophical reason why home ownership should be encouraged by the government. There is neither shame in renting nor virtue in owning.

But when you look at the details of mortgage interest deduction up close, you begin to see how ugly it really is.

Arbitrary Taxation

First, think about what it means when a homeowner manages to pay less in taxes than a renter. Assuming they both had the same income and their other deductions were identical, the homeowner gets an additional tax break merely because she chose to purchase a home. How is that fair? That would be like if the government arbitrarily decided that the diamond industry was worth supporting, so it allowed anyone who happens to buy jewelry containing diamonds to deduct the expense from their taxes.

Read more here: http://www.theatlantic.com/business/archive/2010/03/4-problems-with-mortgage-interest-deduction/37907