The fact that I'm a renter might explain why I can contemplate killing the mortgage deduction, if it weren't for the fact that I've been sucked into the mortgage industry, almost against my will, since I processed loans a while ago to put food on the table during the tech crash, and subsequently I've gotten roped into building a big mortgage Web site. I have chips on the table, yet in good conscience I have to support ending the deduction. It's not entirely true that only other people will go through the pain.

When you consider how various parts of the tax code distort the economy as people make decisions for their tax benefits rather than intrinsic economic sense, seems like the mortgage deduction is the most distorting of all. Trillions of dollars in investment are affected by it, and we've seen serious consequences in housing hyperinflation. Add up the tax breaks and all the various government-sponsored loan programs, like VA and HUD, and housing's the most heavily-subsidized industry in America.

I wonder if there'd be a way to phase out the deduction. Grandfather the break for existing mortgages, kill it for new mortgages. The mortgage industry'd come up with new loan products for the new environment...never underestimate the ingenuity of people who can dream up things like hedge funds and mortgage-backed securities and reverse mortgages.

House prices would still crash (i.e., readjust to a rational level based on undistorted supply-and-demand). Maybe the way around that is to vest ownership rights in the grandfathered deduction, kind of the way companies "own" their pollution quotas and can buy and sell them. A seller might be able to get a good (inflated) price on the sale if he/she includes the deduction in the deal; or sell at a loss but use the deduction to subsidize the next purchase. There'd be two tiers of home prices, the real price and the price subsidized by a grandfathered mortgage deduction.

Wadda ya think, CPA dude?