Today’s The New York Times Sunday business section includes a front-page feature with contributions from six accomplished economists: Gregory Mankiw, Christina Romer, Tyler Cowen, Robert Frank, Robert Shiller, and Richard Thaler.
The piece, titled I Just Got Here, but I Know Trouble When I See It, tackles various economic issues.
Robert Shiller, the economist who co-created the Case-Shiller home price index and famously predicted the housing bubble, discusses the ailing housing market and points to a fix by changing tax incentives:
Prof. Richard K. Green, director of the Lusk centre for Real Estate at the University of Southern California, has proposed changing the tax system so that it offers stronger, more targeted encouragement for home-ownership by focusing on people who might be giving up the dream of buying any home at all. The current mortgage interest deduction, Professor Green argues, based on his work with Prof. Andrew Reschovsky of the University of Wisconsin, is mostly an incentive for relatively wealthy people to build bigger houses, rather than for people of modest means to buy a home. It also provides a strong incentive only for people in high tax brackets, who benefit more because of their higher marginal tax rates, and who tend to itemize because the standard deduction is less advantageous for them.
Professor Green wants to offer more help for lower-income taxpayers. He suggests creating a refundable tax credit as a percentage of mortgage interest payments, one that could be used even by those who take the standard deduction. This credit, presumably with some dollar limit, would be available to all homeowners. (That is in contrast to the HARP 2.0 mortgage refinancing program from the Obama administration; it is available, arbitrarily, only to those with Fannie Mae and Freddie Mac mortgages.) Professor Green proposes paying for this change by gradually phasing out the existing mortgage interest deduction.”
Shiller is a champion of home ownership: “Homeownership fosters citizenship, builds stronger families and communities, encourages active participation in the economy and, ultimately, bolsters economic confidence.”