> That's true from an originalist standpoint; the question is: when they got
> rid of the interest deduction (principly because that sector had grown, and
> it became clear that it was wrong), why did they leave mortgage interest?
> That's when the policy decision was made.
I don't know about in the States, but in Australia tax deductability of interest started changing at a very specific point in time, around 1960, when the growth of non-bank financial institutions was threatening central banking based on management of bank liquidity. It was part of a deliberate attempt to push deposits back to the banks by stuffing up the business model of finance companies. But back then the authorities tried to isolate housing finance from the effects of monetary policy in general, so the divergence began. I'd say in general mortgage interest is just more politically sensitive.
Mike Beggs