On Wednesday, I published a piece arguing that the Republican tax plan would hurt home values by effectively killing off the mortgage interest deduction for middle-class families. A few readers have suggested that might not be such an awful policy move. So I want to elaborate on why it is.
To quickly review, the Republican tax blueprint that Paul Ryan rolled out this past summer calls for simplifying the IRS code by eliminating a number of breaks and nearly doubling the standard deduction to $24,000 for joint filers. Technically, the plan would keep the mortgage interest deduction in place. But with such a high standard deduction, very few people would choose to itemize. That would kill the tax advantage of having a mortgage, leading home prices to fall. People who paid more than $24,000 a year in mortgage interest would still get some benefit from the deduction, meaning that the luxury housing market would be comparatively unaffected.
