In 2010, the co-chairmen of President Obama's deficit reduction commission proposed curtailing or eliminating many tax deductions such as the one for mortgage interest. Economists who favor the proposal argue that it would (i)
Correct a misallocation of resources because too much of the economy's capital stock is tied up in residential housing and too little is invested in corporate capital.
(ii)
Cut both spending and taxes.
(iii)
Encourage private philanthropy.

Question

Quizplus · Accepted Answer

(i) and (ii) are correct because the proposal would correct a misallocation of resources by reducing the incentive to invest in residential housing and increasing the incentive to invest in corporate capital. It would also cut both spending and taxes by reducing the amount of money that the government spends on mortgage interest deductions.

In 2010, the Co-Chairmen of President Obama's Deficit Reduction Commission