Eliminating the Mortgage Interest Deduction Would Not Make the Tax Code Fairer

One frequent point made by free-market types, such as myself, is that the tax code's many preferences and deductions make the tax code distortionary and result in unnecessarily high marginal rates. The prime example cited is always the mortgage interest deduction which is said to favor the well-to-do and cause house prices to rise too high. While the general principle is sound, abolishing the mortgage interest deduction is not necessarily a step in the right direction.¹

Australia Does Retirees No Favor

Matthew C. Klein over at Bloomberg View argues that the most recent move does:

The biggest pension fund in Australia is planning to directly manage 30 percent of its assets by 2018, rather than outsource the task to expensive external managers who rarely justify their high fees with superior returns. This should help the fund cut costs and boost retirement benefits.

While the basic premise—actively managed funds usually don't justify their high fees—is correct, this proposed reform is likely to make things worse rather than better, at least for the putative beneficiaries, for two reasons: