Mortgage Interest Deduction On the Chopping Block?

Posted on December 2, 2010 by Jim

Update 3 December 2010:

Obama panel rejects debt deficit proposal, mortgage tax deduction limit

Deficit Panel rejects sweeping reform plan

If the Politicians on the The National Commission on Fiscal Responsibility and Reform were purely interested in solving the American fiscal crisis, they wouldn’t have chosen such a theatrical title, “The Moment of Truth for their report.

Sen. Judd Gregg (R., N.H.), ranking member on the Budget Committee: “The world is looking at us and saying ‘How could such an exceptional country have gotten in such trouble?’”

The problem is that the politicians are seeking to reform/remedy/fix within the current framework and structure that exists rather than recognize and admit that the system is fundamentally broken. Our tax code is in need of reform, not parts of it.

My argument against the Mortgage Interest Deduction being negated is less about its fundamental nature to the stability of the housing market and more to the point that politicians wield power that we should not permit them to have.

Current: Deductible for itemizers; Mortgage capped at $1 million for principal and second residences, plus an additional $100,000 for home equity

Proposed: 12% non-refundable tax credit available to all taxpayers; Mortgage capped at Mortgage Interest $500,000; No credit for interest from second residence and equity

But for now, I’ll be contacting my politicians* who ostensibly “represent” me and telling them that my opinion is that they:

1) Leave the Mortgage Interest Deduction alone. Now is not the time to further cripple the housing market

2) Look at the tax code. Consider choosing Fairness over manipulating the peoples’ lives; consider stripping yourselves and your successors of the power to manipulate others. Consider removing special interests from the equation.

Under the FairTax home purchases are more tax advantaged than they are today. For working Americans, the “true cost” of buying a home goes down. In a nutshell, homes are more affordable because the majority of homes are used and are not taxed, the interest paid on new homes at a lower rate is untaxed, new home prices do not bear taxes imposed upstream, and the saving and investment needed to buy homes is not taxed multiple times.

What are your thoughts?

Educate yourself:

- The Opening Salvo of the Housing War: Mortgage Interest Deduction

- Realtors® Say Mortgage Interest Deduction Vital to Home Ownership, Economy

- FairTax and Housing

* But not Tom Perriello; he is no longer accepting email.

As of Thursday, November 18, 2010, Rep. Perriello will no longer be able to receive correspondence by email. Please contact his Washington, D.C. office or your local district office by phone or mail for assistance.

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  • David

    Pretty much everyone agrees that the MID is terrible policy, but the tough question is what to do with it since it’s written into the tax code already. I hear three responses, generally:

    1. The horse is already out of the barn. Pulling it away would be too hard on existing home values, so we should just try to mitigate the damage as much as possible and carry on with business.

    2. Phase it out gradually by lowering the limits, restricting it to primary residences, and imposing any changes on new mortgages so people’s expectations are not thrown off much.

    3. Pull it away at once and let the free market bring us back to equilibrium.

    I favor number two.

    • http://www.realcentralva.com Jim Duncan

      I would be in favor of number two if it were combined with an alteration of the tax code.

      The MID is terrible policy in that it permit the politicians and government to manipulate the people. We the People need to stop being complacent and demand a fix.