If you're denied a deduction given to others, the reality is you are being PENALIZED. One coin, two sides. It's that damn simple.
'Words' are extremely important in law, and particularly so in tax law.
I believe you are mis-applying the term "penalty" in the context of tax law.
All penalties applying in the context of tax law are specifically defined in the Internal Revenue code (tax law as written by Congress). And in tax law, a penalty != a tax.
For example:
A tax can often be credited (foreign income tax) or deducted (state income tax, sales tax, employer SS etc.)
Penalties, as defined by tax law, can never be credited or deducted.
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Also, penalties only arise when you are legally obligated to perform some action. Failure to perform the legally mandated action results in a penalty.
You are not legally obligated to purchase a home with a mortgage.
Therefore, you cannot, by definition, be penalized for not doing so.
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Re: 'Fairness'
Our tax law is absolutely loaded with various provisions that attempt to motivate people to one or another action.
In this case, they reward those buying a home with a deduction to motivate them to do so. Unlike some special provisions (e.g., muni interest being tax free), Congress is under no compulsion to provide this deduction, they do so only to encourage home ownership (and the business it brings, including additional revenue for the US Treasury).
Now, you may be questioning whether this is 'fair'. Are you having to pay in additional tax because others bought a house? Does this mean you are paying more than your 'fair share'?
Well, you certainly cannot point to any
direct burden upon yourself as a result of this deduction.
Now, you may claim that any incremental increase in national debt burdens you. But you are conventiently forgetting that those buying homes are generating all kinds of other revenue streams for the government. E.g., the banks pay income taxes on the mortgage interest they receive, the mortgage employees pay taxes on their wages, the builders pay taxes, the building supply stores pay tax etc.
You contribute to none of that, yet it goes in to the gov and reduces debt, some attributable to you incrementally just like for the deduction (only the opposite). The two sides of the same coin -thingy you mention.
So, it may not even be 'unfair'.
Fern