Renters rent from a homeowner, so renters benefit too. Essentially it subsidizes residential housing at the expense of other forms of investment.
From and economic efficiency standpoint... quite simply it should be phased out over time. its another example of the govt distorting markets with the tax code. but, I tell this... the republicans are idiots if they phase it out. that MID made a lot of people want to buy a home... without it.. less savings... fewer republicans.
I can understand why Obama would want to go after something like the MID. His core constituents are living in section 8 housing, college dorms or their parents basement. Why republicans would even consider it is harder for me to understand. The MID is one of the few tax benefits available to core republican constituencies. The idea we would forfeit it to exempt dividends from tax is lunacy, since most people already don't pay taxes on dividends, as they are received in IRA's etc. The fairness argument leaves me cold. The country has long had a policy of encouraging home ownership. It is one of the few government policies that make sense. Home ownership is statistically associated with a host of favorable outcomes. Renters don't get the tax break. So what. They also do not have to pay property taxes, property insurance(not deductible BTW), bear the financial risks of ownership or pay a mortgage. They don;t have to worry about selling their house if they get a new job and have to move. In short, there are conveniences to renting that you forfeit as a homeowner. Now that owning a house is not a surefire road to riches, it seems like a particularly inopportune time to be undermining the financial case for home ownership. Republicans got sucked into "reform" of real estate taxation with the 1987 tax reform act. It decimated the real state market for years and had a big influence on the S & L crisis. I can't believe they would run that risk again. Bottom line, the republican party is toast if they actually follow through on this or allow democrats to do it.
I think the point is that even if you eliminate the MID the net result will be a wash. Meaning that without the deduction people cannot afford as much when they are looking to buy a house ... thus home prices automatically adjust downward and therefore you end up (after everything settles down) being able to afford the same house as you were before - the house purchase price is less so your monthly mortgage payments are lower but you can no longer deduct interest so your taxes are higher - the two should wash out since housing is all based on supply and demand. Anyway, that's the theory, whether or not it would actually work out that way of course can be debated of course. The big downside is the loss of equity for all the existing homeowners when home prices go down...obviously that is a big negative, especially now...a long phase-out period should be able to mitigate most of that. Edit: Long article that says basically the same thing: http://www.thefiscaltimes.com/Artic...-of-Cutting-the-Mortgage-Deduction.aspx#page1
And this is precisely why nothing will ever change... The amount of vested interest is just too great. Since the crisis we have witnessed the lobby groups representing different parts of the financial markets (e.g. banking and money market fund industries) defeat all attempts at reform. Surely, there's absolutely no hope that anything that even slightly endangers the entire real estate industry will ever make it past the politicians.
I guess you have never seen riots where people just do not care. Very similar arguments about not daring were made before every revolution: English, Ameican, French, Russian and so on.