A simple solution for mortgages, and an economic stimulous.

There is a simple, effective, proportionate, low-overhead, safe, and fair way to remedy housing illiquidity and stimulate the economy: significantly increase the tax deductibility of mortgage interest, probably by creating a mortgage interest tax credit. It's simple and low overhead as it uses existing infrastructure, the IRS. Proportionate in that it's scaled to the size and 'vintage' of the mortgage. Fair in that all homeowners benefit, not just the irresponsible, and by that means it's stimulative (so start with tax year 2008). Safe in that unlike all the other proposals it doesn't encourage homeowners to go delinquent in order to qualify -- just the opposite: if you don't pay your mortgage there's no deduction or credit.

For numerous reasons it should phase-out fairly soon; for example, after 3 years (2008 - 2010) the credit would reduce over the following 5 years. Long enough to be effective, short enough to avoid creating a second bubble. It should be limited to one's primary residence.

I suppose it's also applicable to autos, credit card, and other consumer debt. They used to be tax-deductable but we lost that when Pres. Reagan cut tax rates to 28% and the economy boomed, sustainably boomed. That's an even simpler solution: reverse the record-breaking & anti-growth Bush-Clinton tax hikes!

JRB

12/18/08