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Ontario Home Mortgage Interest Deductions as a Wedge Issue

It has been frequently mentioned that the Ontario Tories owe their recent success to their ability to deftly exploit what are referred to as wedge issues. John Wright (senior VP of Ipsos-Reid) explained in the Toronto Sun:

Elections in Ontario are decided by about 15% of the population -- those people who have no ideological allegiances and can be swayed by a single, hot-button issue, he said. "This [the electricity deregulation bungle] has all the characteristics of a wedge issue," Wright said. "This is an issue that can change a government."

The Ontario PCs under Ernie Eves have been floundering, and Eves now may be looking to the right-wing team of strategists that created the Common Sense Revolution to rebuild his platform in time for the next election. There were articles today in both the Globe and the Post about how Ernie is being repositioned to the right -- perhaps so far that he won't even recognize himself.

One of the new issues that this team is floating as a possible campaign position is that of a home mortgage tax deduction. This is a wedge issue, but it goes beyond the definition put forward by John Wright. This position seems to be one well-designed to target not only the undecided, but also those more likely to vote PC to begin with.

Any new tax deduction changes the balance in our public finances. It is not merely a tax cut; it alters the ratio of who pays how much. It creates winners, and -- when compared to a revenue-decreasing across-the-board tax cut or to a revenue-neutral combination of tax deduction plus across-the-board tax increase -- it creates losers.

In this case, the winners are people with mortgages -- the bigger the better -- and the losers are people who rent, or who already own their home. Now, I am well aware that not all mortgage-holders are PC voters, but there is a definite skew here. Certainly, as a group, renters are much less likely to be voting PC -- even before this proposal. "So," the Common Sense braintrust must have thought, "why not alter the tax code in favour of our constituency?"

Additionally, this move most works to the PCs' benefit in key swing ridings that they are relying on this election. This change alters the tax system in favour of suburbanites and can help restore PC support in the 905 belt. Of course, not all suburbanites have mortgages, and not all city-dwellers are renters, but there is a clear bias here.

Beyond this political favouritism, there is another reason to oppose the home mortgage interest deduction.

A new tax deduction such as this has an impact on the marketplace. If Ontario makes mortgage interest tax deductible, it changes the relative prices of goods available for sale. Housing becomes cheaper relative to everything else, and this creates an incentive to invest more of our efforts in building larger homes, and less of our energy in all other goods and services. This can be (yet another) powerful incentive for suburban sprawl. We can learn from experience in the United States. Writes Sprawl Watch:

Suburban migration has also been fostered for decades by federal tax deductions for home mortgage interest, which essentially subsidizes homeowners (suburbs) over renters (city). "This tax policy has tended to encourage the construction of detached single-family houses, most often in the suburbs," writes urban planner Douglas Kelbaugh in Common Place. "This single tax provision costs the federal treasury an estimated $50 to $90 billion a year, making it in effect the broadest and most expensive welfare program in the U.S.A." The home mortgage deduction significantly boosts demand for land in suburban-lot-sized parcels.

I am not against home ownership per se, I just don't know why it should be subsidized.



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