Policy driven economy #6

Mortgage Interest

Canada’s economy also benefits from the fact that homeowners, unlike their U.S. neighbors, can’t take mortgage interest as a tax deduction, Taleb said. That removes the incentive to take on too much debt, he said.

“The first thing to do if you want to solve the mortgage problem in the U.S. is to stop making these interest payments deductible,” he said. “Has someone dared to talk about this in Washington? No, because the U.S. homebuilders’ lobby is hyperactive and doesn’t want people to talk about this.”

And the results of this policy are obvious.

In fact, when you hear people describe housing as an “investment”, remember, that without the tax break, it wouldn’t be.  Even with it, it still isn’t, but that’s beside the point.

One thing Taleb failed to mention was that people used to be able to deduct credit card debt interest from taxes prior to 1986.  Following that, it was only mortgage interest.  Which in turn led to people refinancing and “taking cash out” of their homes.  It appeared to be free debt in so many ways.  Especially when one could actually lower their mortgage payment through artificially low interest rates AND get a tax deduction to boot.

Once again, the broken window and the unseen.  Nobody ever bothered to think what the long term consequences of this policy would be.

It further illustrates that when the state steals, it must find ways to make the theft more politically palatable.  Either way, it’s terribly destructive, as is all policy driven economy.


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