The authors begin with a discussion of the MID. They also note that the deduction came about by accident. Prior to 1986, all personal interest was deductible including mortgage interest. The Tax Reform Act of 1986 removed the deductibility of personal interest, but kept the MID. Thus, it was not as though MID was intentionally granted in the first place, but it came about because of some choices made early in the development of the income tax.
Additionally, the authors discuss much of the literature supporting home ownership and the mortgage interest deduction. For example, homeowners are thought to take better care of their home through maintenance and gardening. This leads to an increase in the neighborhood quality and property values. Homeownership is wealth building. Homeowner families have better outcomes for their children. And homeowners are more likely to be involved in local politics and civic organizations.
But there is a problem with all this research. First, it is often hard to untangle whether owning a home causes these outcomes. For example, perhaps people who are homeowners have more wealth because it requires significant wealth and income to purchase a home and maintain it.
But even more pernicious are what these studies claim are the benefits of homeownership. Many of these benefits code as fitting an ideal of whiteness. For example, homeownership supposedly leads to better kept homes, higher quality neighborhoods, and increased property values. But the desire to preserve such goods was also part of the rhetoric used to exclude racial minorities from homeownership and certain neighborhoods. The same goes for stable families and outcomes for children. Many whites attacked racial minority families as somehow broken or inferior, and used that line as another reason to keep racial minorities out of their neighborhoods and homeownership.
Furthermore, many of the studies may not really do a good job of controlling for race. While they often use race as a controlling variable, many do not use wealth as a control, instead opting for income, which is more easily accessible in data sets. But these studies may be confounded by the racialized disparities in wealth in attributing all these benefits to homeownership. The result is that these studies unwittingly reinforce many of the long and problematic assumptions of race in the sphere of housing.
Most of the actors conducting the studies or Members of Congress enacting the law these days are hopefully not intentionally trying to create a racially disparate harmful policy in the MID. Instead, the authors show that much of what is going on happens as an unconscious and automatic cognitive bias. These implicit racial assumptions are part of an automatic system, what social psychologist Daniel Kahneman called System 1, rather than the conscious and fully reasoning System 2. These implicit racial biases thus infect the policymaking process and studies used to inform that process. That in turn leads toward unwitting support for continuing many of these problematic policies.
But it gets worse. Other cognitive biases add to the problem. While this review is too short to catalogue the rich set the authors highlight, one important example is that of confirmation bias. Given the accidental nature of the MID and the long history of support for homeownership, legislators and study designers may look to confirm their preexisting beliefs that we should subsidize homeownership. Thus, they highlight evidence that supports homeownership while downplaying evidence that questions it or highlights some of the problematic racial history in housing policy. Combining these heuristics with implicit racial biases creates a self-reinforcing system that entrenches the MID and other racially problematic tax policies.
The authors then propose some solutions. They discuss having disparate racial impact statements in legislation, though they also warn of their shortcomings. They also note that having testimony from experts who understand cognitive biases like implicit racial assumptions could help raise awareness of the issues in any piece of legislation and propose solutions. It is harder to ignore these problems when an expert raises them in a hearing, but too often these voices are not included. The authors also suggest some training for legislators on these cognitive biases. But even with these multiple tools, the authors note that the work here may require multiple points of pressure and is not easily amenable to simple solutions within the scope of the piece.
Addressing the concerns that the authors raise is necessary, difficult, and complex. All these biases are automatic System 1 processes. Going against that urge requires a great deal of effort, attention, and energy. That runs then fundamentally against our human nature. The authors’ proposed reforms though are important because they provide a few tools to bring out these biases and force us to engage with them. But the goal for removing these biases will require even more tools to add onto what the authors propose, something the authors highlight. Thus, the authors obligate many of us to also think of additional creative tools to undo these biases in the tax policymaking process.
The piece also raises an important point that tax itself is not an island. What happens in tax does not stay in tax, and tax is interconnected with many other areas. Some of those connections, because they operate at the level of cognitive biases, remain hidden to us. But it is also important to realize that in the discussions of important issues like racial justice, economic inequality, and the overall functioning of society, tax influences and is influenced by forces that exist outside of the tax sphere. After all, the MID survives because of rhetoric that arose to support continued racial segregation unconsciously embedded itself into other values and positive outcomes of homeownership. As a result, it also encourages many of us in tax to step back and think of what connections and influences, both conscious and unconscious, may color our own thought processes when we discuss tax policy.