
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, June 1, 1995                   TAG: 9506270016
SECTION: EDITORIAL                    PAGE: A8   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

WHY SUBSIDIZE MANSIONS?

DON'T KID yourself. Despite Republican victories in the 1994 congressional elections, in many ways it's still politics as usual on Capitol Hill.

Take, for example, the great middle-class tax break, the deduction for home-mortgage interest that each year reduces the federal income-tax bill of 28 million homeowners by a total of $50 billion to $60 billion.

The subsidy, it turns out, isn't only for the middle class. The wealthy also are in on the deal. Some 15 to 20 percent of the tax dollars not paid (and thus paid, in one manner or another, by other people), involving only about 7 percent of the aforementioned 28 million home-owning taxpayers, are from deductions for the interest on mortgage-principal amounts above $250,000.

Under legislation promoted by Senate Finance Chairman Robert Packwood, $250,000 would be the new cap - down from the current $1 million - on which interest deductions could be taken. But the real-estate, banking and building lobbies apparently have scuttled Packwood's idea as easily in a Republican Congress as they could've in previous years when the Democrats ran the show.

Packwood wants to use the $52 billion in recouped revenue over the next five years to reduce the capital-gains tax by the same amount. The issue, he says, is "mansions vs. machines." This is a sound-bite capsulization of the economic argument against the mortgage-interest deduction: that it's a form of government intervention in the marketplace which encourages resources to flow into one industry, homebuilding, at the expense of more dynamic industries, and personal savings to be tied up in home ownership at the expense of other, more productive kinds of investments.

Against the economic argument is the social argument in support of the deduction - that it fosters societal stability by making home ownership, and the stakes in the community that accompany home ownership, more affordable for more people. This argument, along with the political popularity of the provision, has helped sustain the deduction as a feature of the law since the income tax was created in 1913.

But whatever the validity of the social argument, how does it apply after a family's first $250,000 of home-mortgage borrowing? What is so socially valuable about showplace homes and vacation retreats that other taxpayers should subsidize their enjoyment by an affluent few?

by CNB