About a month ago, my colleague Cameron penned an article about the Mortgage Interest Deduction – namely, whether it is a good idea or not. For an itemizing taxpayer in the 25% bracket, he pointed out, “The bank receives 4.0% interest, the homeowner pays 3.0% and the taxpayer is left footing the 1.0% difference.” Right – and the bank ends up pocketing the subsidy.
The multi-payer system sets up the incentive for those without their own insurance to be unhealthier. Car accident deaths increased after the seatbelt law was instituted. When I finally have to foot some of the bill, do I still want to see Americans wolfing down their Wendy’s?
It has been mentioned here and elsewhere that the mortgage interest deduction in the tax code is a roundabout way of subsidizing banks. If interest rates are determined by supply and demand then the demand for interest rates is only dependent on what a taxpayer’s “effective interest expense is”. A new study suggests that most of the benefits fall into the hands of lenders.