A new law abolishing the tax deduction on mortgage interest would generate far less money for the federal government than current projections may suggest.
And it could have disastrous effects on the economy.
Consider a person with a $100,000 mortgage on his home. This person also has $100,000 worth of investments in stocks, bonds and cash in a savings account. He now pays tax on the income from his investments and deducts interest paid on his mortgage, so there is an approximate balance. He hopes that the income of his investments will equal or exceed the interest he pays on his outstanding mortgage, but he also likes the freedom to move his investments around, take money from a savings account to invest in some new stocks or new factories that look particularly promising.
In short, his investments are flexible and are at the foundation of the U.S. economy. Attractive new business prospects need venture capital.
If such a law went into effect, our man could not afford to continue paying tax on his investment income without deducting his comparable mortgage interest payments. So he sells his investments -- his stocks and bonds -- and pays off his mortgage. He and millions of others like him. With all those sellers, the stock market nose-dives and interest rates skyrocket. Money is so tight the market freezes up, and we have another financial crisis, maybe worse than anything we have ever seen before.
Abolish the tax deduction on mortgage interest? It's a bad idea.
Daniel H. Daniels Beaufort