Sen. Joseph Lieberman has proposed creating a tax credit for home purchases. The Tax Foundation says it's a really bad idea, because that type of tax credit could raise home prices. Consider this story: Assume you had four houses and each was worth $500,000, but in House A there was $20,000 sitting on the kitchen table waiting for you if you bought it. What would happen to the price of House A relative to the other three? It would increase by $20,000, and the net price you would pay on each of the houses would equalize. You would be no better off by having that $20,000 in the kitchen table than before because the price of that home would just become $520,000. The same is true for when the government provides money to a homebuyer for making a purchase of a home. If Senator Lieberman really wants to make homes more affordable, why not restructure the home mortgage deduction that's already on the books? Like credits, the home mortgage deduction has raised home prices. A targeted deduction may lower their cost. More people who don't itemize their deductions could afford to buy a home. Plus, cutting back the mortgage deduction would flatten the ridiculously large margins for expensive housing that have been, in part, fueling the "housing bubble." That might make affordable housing more attractive to builders, and a bigger supply of affordable housing could help bring more renters into homes, too. And, of course, a smaller deduction would reduce the deficit and make the tax code more progressive. So how bout it, Sen. Lieberman? (For more, see this great piece from the NYT magazine on the perverse consequences of the home mortgage deduction.)