Fiscal Honesty Through the Tax Code? Unlikely

Holman Jenkins ends his opinion piece about Fannnie Mae and Freddie Mac in Wednesday’s Wall Street Journal with the memorable line: “. . .and (if we really feel more subsidy to homeowning is needed) insisting that Congress do it the fiscally honest way, through the tax code.” Come on, Mr. Jenkins, if we want to be fiscally honest, we should do it through appropriations. Or at least through a capped, income-phased-out, refundable tax credit, which somehow I doubt was what he meant (although I’d be pleased to learn otherwise).

The standard tax code technique, an uncapped deduction, ends up subsidizing those who don’t need it and neglecting those who do. The fiscal 2009 budget projects tax expenditures of over $100 billion for the home mortgage interest deduction. Honest budgeting would recognize that much of this goes to people who don’t need it and artificially props up house prices. If we want to subsidize homeownership honestly, we’d get rid of the tax deduction and appropriate money to be directed to those who would not be homeowners without the subidy. But then, of course, we’d have to get serious about making the Department of Housing and Urban Development work.