Gary Cohn is correct. The White House National Economic Council director said Thursday that people do not buy homes because of the mortgage deduction. The tax break that allows homeowners to deduct their mortgage payments exists to line the pockets of realtors by encouraging people to purchase bigger, more expensive properties.
Don’t believe a center-right millennial journalist who currently (and for the bleak foreseeable future) rents to keep a roof over his own head? Then ask Jonathan Gruber, the MIT professor and chief architect of Obamacare, who presumably owns a house and who definitely opposes the deduction.
In a working paper for the National Bureau of Economic Research, Gruber along with economists from both Princeton and the University of Copenhagen found that the deduction has “precisely estimated zero effect on homeownership, even in the very long run.” Their results of their research, Gruber writes, “strongly dispute the notion that the notion that the tax subsidy is justified.”
The credit isn’t without benefit though. It’s a boon to the real-estate industry overall, helping agents rope families into buying more expensive homes. “You think this five bedroom, 4.5 bath Cape Cod with an attached three car garage is out of your budget?” says every realtor across America. “Well haven’t you heard of the mortgage deduction?”
Republicans aren’t planning to get rid of the deduction for mortgage interest, but doubling the standard deduction, as they propose, would moot the mortgage deduction for most homeowners.
Taking questions from reporters Thursday, Cohn explained why making the deduction irrelevant for middle-class families won’t harm home ownership.
“The number one reason why people buy homes is they’re excited and optimistic about the economy,” Cohn explained behind the White House podium. “They have a job today, they feel confident they’re going to have a job tomorrow, and their kids are going to get a job and their spouse has a job.”
Suddenly economists and liberal journalists piled on. Slate editor Felix Salmon called Cohn “a hack who lies for fun” and David Folkenflik, a presumably unbiased NPR media correspondent, was bold enough to call “it the opposite of true.”
But this puts the liberal journalists turned overnight financial consultants in a pickle. They’ll never believe a Republican White House. But can they really disagree with Obama’s top economist?
Philip Wegmann is a commentary writer for the Washington Examiner.
