Defending the mortgage interest deduction...

The WSJ has a lengthy article on why we should get rid of favorable treatment of home ownership by the government, including the mortgage interest deduction.

The article argues that Subsidies for home ownership—in the form of full deductibility of mortgage interest, lower mortgage borrowing rates derived from government guarantees for mortgage lenders like Fannie Mae and Freddie Mac, and deductibility of local real-estate taxes—have long benefited those who own homes at the expense of those who do not...
Home ownership should not be considered a public good deserving of government subsidies even without the bubble collapse for a simple reason: Those who receive the subsidy get to capture the benefits in the form of home prices that are higher than they would otherwise be without government support. The subsidies make homeowners better off while they make renters worse off. They are, therefore, not Parieto optimal.

Now, in a perfect world, if we had a flat tax and no special-interest deductions, he would be right. But we don't - we have tons of deductions that transfer money from one group to another, none of which are fair. The mortgage interest deduction - which a sizable chunk of the population gets, for doing something that has at least some positive benefits, is probably one of the least unfair of the unfair tax policies out there.

There are some arguments in favor of a public benefit of home ownership - they tend to produce more stable communities, since people move around less. They give people an incentive to put money into improving their homes that landlords/renters don't - which means a higher tax base for property taxes for the state/county/town. For many people, they are a form of "forced savings", a way to set aside money for the future by paying one's mortgage. Home ownership often leads to employment for contractors and builders, additional sales at home improvement stores and other businesses. Do these advantages outweigh the cost to renters? I don't know, and it's probably not measurable, but I would say it's at least nonzero.

But the main reason I support the mortgage interest deduction is because it's pretty much the only deduction I qualify for. I don't have kids, my income is too high for me to deduct more than a few dollars for student loans, I don't give significant amounts of money to charity ('cuz I'm a jerk). I don't qualify for any of the stimulus-bill deductions of late - my truck is too new to trade in as a gas-guzzling clunker or to justify buying a new car and taking advantage of the sales tax deduction, I don't need new HVAC or windows on my house, I'm not a new homebuyer. Mortgage interest is pretty much the only deduction I get. When it comes to special interests, the government isn't otherwise very interested in how special I am.

The author argues that the mortgage interest deduction is an unfair transfer from poor renters to wealthy homeowners. But there are tons of other tax credits and government programs that transfer money from the wealthy and middle-class to the poor, from the earned-income tax credit to WIC and food stamps to student-loan deductions that fall off at fairly low levels of income. The mortgage-interest deduction is pretty much the only chance that mid to high income people have to keep some of their money, and getting rid of it in the absence of a decline in marginal tax rates would mean that middle class and wealthy people would be paying significantly more in taxes, and that the transfer of money from the middle class and wealthy to the poor would be far more extreme.