Global Warming and the Mortgage Interest Deduction

If concerned about monetary liquidity, mortgage foreclosures, and contracting property values, throw another log on the fire. Representative John D. Dingell, head of the Energy and Commerce Committee, will introduce climate change reform legislation in the House next month. His plan would impose (1) an across-the-board $100 per ton tax on carbon-dioxide emissions; (2) a 50-cents per gallon tax on gasoline; and (3) end the mortgage tax deduction on all homes larger than 3,000 square feet.

Lawrence Yun (the senior economist for the National Association of Realtors) estimates at least 10.4 million single-family houses with interior areas of 3,000 square feet or more exist (or roughly 15 percent of the nation's owner-occupied housing stock). He argues that ending the mortgage tax deduction on such large homes will decrease property values on homes across the board.

In December 2006, when asked whether he believed the scientific consensus on global warming is established, Rep. Dingell replied,

"This country, this world, the [human] race of which you and I are a part, is great at having consensuses that are in great error. And so I want to get the scientific facts, and find out what the situation is, and find out what is the cure, and find out what is the cure that is acceptable to the country that I represent and serve."

Given his current plan, we may take it that Rep. Dingell now has the scientific facts. Moreover, he has uncovered the situation and found an acceptable cure. So we must brace for the medicine. H. Sterling Burnett, senior fellow at the National Center for Policy Analysis, agrees that Rep. Dingell's plan will lower greenhouse emissions by sending the economy into a recession or an economic depression.

Likewise, the Tax Foundation mused about how the current mortgage-interest-deduction system (designed to promote homeownership) may have negative externalities (i.e. pollution or greenhouse gas emissions) that may exceed any positive external social benefit from marginally larger homes.

Some environmentalists feel that Dingell's plan simply does not go far enough, e.g., Discussing Climate Change with Mr. Dingell. But when he announced his plan, Rep. Dingell had the support of environmental groups, such as Clean Water Action, the Ecology Center, the League of Conservation Voters, the National Wildlife Federation and Environment Michigan.

A concern exists that if this plan (should it be implemented) causes property values to fall, it may increase the rate of mortgage foreclosures by two or three hundred thousand. Dean Baker, the co-director of the Center for Economic and Policy Research, has floated his own plan to address this situation in an article entitled Save Subprime Borrowers, Not Bloated Bankers:

"There is a simple and direct way in which the federal government can help out millions of moderate income families struggling to keep their homes. They can simply change the rules on foreclosure to allow moderate income homeowners the option to remain in their homes indefinitely as renters, paying the fair market rent.

Mr. Baker argues that his plan would ensure that moderate income homeowners would not end up on the street when they cannot meet the contractually agreed up on terms of their mortgages. In his view, this proposal would accomplish the goal of protecting homeowners threatened by foreclosure without new bureaucracy or taxpayer dollars.

Ordinarily, the Fifth Amendment of the United States Constitution's protection against being "deprived of life, liberty, or property, without due process of law" would block any discussion of something like the Dean Baker proposal. But given the Supreme Court's recent eminent domain rulings, the Constitution no longer appears quite the barrier to innovative legislation as in past years.