Repeal of the Mortgage Interest Deduction
November 11, 2010 10:36 AM
On November 10 the bipartisan Federal Deficit Commission proposed a massive change in federal spending and the tax code. The plan would save $3.8 trillion by 2020 and balance the federal budget by 2040. We congratulate the Deficit Commission for its good work. Unless we reign in the growing deficit our nation will continue to lose jobs, and the future of our children and grandchildren will be bleak.
Everybody can find parts of the proposal they oppose, and most of us can find parts that we like. What's critical is that we support the bottom line. If you don't like specific parts of the plan's tax increases and/or budget cuts you should offer specific alternatives to minimize the pain and/or make up for the difference. For example we're concerned about the Commission's proposed $500,000 cap on the mortgage interest deduction. At minimum it should be indexed to housing values. A flat $500,000 cap would have little impact in many rural areas where you can buy one of the largest and nicest homes in the county for that amount. In pricey cities like Washington DC that will barely buy you a small starter home. A cost of housing index could be applied that would lower the cap in the areas when home prices are lowest and raise it in the more expensive areas.
We'll look at how such a refinement might work out. If it leaves a large share of middle class homeowners unable to deduct all of their mortgage interest costs, then at minimum we'll propose some alternative revenue sources that would fund an increase in the caps. We would like to keep all mortgage interest fully deductible, but that may not be possible in the give and take of the political debate. It may mean that the future owners of a $2 million, 6,000 square foot McMansion can't deduct all of their mortgage interest. This is unfortunate, but perhaps it would help accelerate the trend towards building smaller homes, which are inherently more energy efficient.
Some of the plan's other provisions concern us as well, but we'll also suggest other budget cuts and/or revenue sources to cover other modifications we might suggest to Congress or the Deficit Commission.
This debate will test the mettle of consumers, business interests and politicians. Many will speak out against cuts in their favorite programs or tax deductions, but will not offer alternative sources for revenue to make up the difference. We all owe it to the future of our country and future generations not to take such a gutless approach. Voters should certainly express their views on specific programs and taxes to their legislators, but at the same time they should insist that legislators support the Deficit Commission's bottom line, and come up with alternatives that are least painful to their constituents and most consistent with their own ideology to get there.
Everybody can find parts of the proposal they oppose, and most of us can find parts that we like. What's critical is that we support the bottom line. If you don't like specific parts of the plan's tax increases and/or budget cuts you should offer specific alternatives to minimize the pain and/or make up for the difference. For example we're concerned about the Commission's proposed $500,000 cap on the mortgage interest deduction. At minimum it should be indexed to housing values. A flat $500,000 cap would have little impact in many rural areas where you can buy one of the largest and nicest homes in the county for that amount. In pricey cities like Washington DC that will barely buy you a small starter home. A cost of housing index could be applied that would lower the cap in the areas when home prices are lowest and raise it in the more expensive areas.
We'll look at how such a refinement might work out. If it leaves a large share of middle class homeowners unable to deduct all of their mortgage interest costs, then at minimum we'll propose some alternative revenue sources that would fund an increase in the caps. We would like to keep all mortgage interest fully deductible, but that may not be possible in the give and take of the political debate. It may mean that the future owners of a $2 million, 6,000 square foot McMansion can't deduct all of their mortgage interest. This is unfortunate, but perhaps it would help accelerate the trend towards building smaller homes, which are inherently more energy efficient.
Some of the plan's other provisions concern us as well, but we'll also suggest other budget cuts and/or revenue sources to cover other modifications we might suggest to Congress or the Deficit Commission.
This debate will test the mettle of consumers, business interests and politicians. Many will speak out against cuts in their favorite programs or tax deductions, but will not offer alternative sources for revenue to make up the difference. We all owe it to the future of our country and future generations not to take such a gutless approach. Voters should certainly express their views on specific programs and taxes to their legislators, but at the same time they should insist that legislators support the Deficit Commission's bottom line, and come up with alternatives that are least painful to their constituents and most consistent with their own ideology to get there.
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