I disagree.  You start opening that can of worms, then every other IRS deduction limit opens up to the same disparate treatment.

Better would just be to eliminate the mortgage interest deduction (and every other deduction, for that matter) completely (and lower the base rates accordingly).

Plus, there's an inverse side of the argument you make too... Why is it fair for someone in NY to get a $4000 tax avoidance while someone in IA only gets a $1000 one?  The IA taxpayer is basically subsidizing the NY one just because they choose to live where housing is more expensive.  That's not fair.