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Mortgage tax break on the block

By Holden Lewis · Bankrate.com
Thursday, November 11, 2010
Posted: 10 am ET

A couple of Washington insiders want to get rid of the mortgage interest tax deduction. Normally that's not big news, because thousands of Washington insiders would like to raise your taxes (especially if they can call it "reform") while pocketing your money. But this pair of Washington insiders is more influential than your run-of-the-mill corporate cat fattening himself at the Capital Grille.

Alan Simpson and Erskine Bowles are the co-chairs of the deficit commission, formally known as the National Commission on Fiscal Words You'll Skip Over. The 18 people on the panel are supposed to send a report to Congress. Such a report would require the approval of 14 of the 18 members. Simpson and Bowles are jumping the gun, prematurely putting out a set of talking points, to pressure their fellow panel members in some way.

It's an odd set of talking points. As part of their plan to reduce the budget deficit, Bowles and Simpson suggest charging admission to Smithsonian museums. It's a laughable suggestion, because it would raise a piddling amount of money compared to the size of the budget deficit -- and anyway, have you been to the National Zoo or the Air and Space Museum? Those places will empty your wallet with a quickness.

I'd totally support the installation of hundreds of discreetly placed, frequently cleaned pay toilets on the National Mall, though. Can I get a high five on that? Thought so.

My long way of saying that the Simpson-Bowles talking points aren't very serious. They talk of shared sacrifice, yet propose cutting taxes on the high-earning Wall Streeters who took our bailout money and then rewarded themselves with huge bonuses while the unemployment rate skyrocketed. While the Masters of the Universe would get tax cuts, middle-class homeowners would lose the mortgage interest tax deduction.

In principle, I think the mortgage interest tax deduction should be phased out, because it distorts real estate prices and encourages people to buy more house than they can afford. There's an issue of generational equity to work out, though -- it's unfair to tell future homebuyers, "You can't have the tax deduction that generations of your forbears enjoyed."

The Mortgage Bankers Association complains that the timing is bad: "Given the fragile state of the nation's housing market, now is not the time to be scaling back incentives for homeownership," the MBA says.

The National Association of Realtors hasn't reacted. I expected a Linda Blair-type reaction, with spinning head and split-pea soup, but nada. Maybe the Realtors are nursing a hangover from their annual convention, which was in New Orleans and ended this week. They called it NARdiGras 2010. Party like it's 1932, dudes!

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24 Comments
Brett
January 05, 2011 at 9:11 am

Ed: The mortage tax deduction is subtracted from your adjusted gross income saving you from paying hundreds if not thousands more in taxes. Simple math!

Karem
January 04, 2011 at 7:05 pm

I have suggestions to save money. Cut out all the vacations the pres is taking and save billions. Get rid of TSA! They are nonproductive waste of tax money. Take away all the private jets from the govt bigwigs who can fly coach like everyone else. Expel all lobbyists. Don't allow earmarks and non-related amendments do any bill. Make Congress and Senate read every bill before it is passed and certify under oath they read it. If bills are too long to read, then don't pass them. Don't allow any bills to be written by anyone other then Congress, especially special interest groups. Start sharing the wealth of America with the people like Arab countries do that share their oil revenue with the people. The TARP bailout could have given every American a million dollars and still had money left over. Then all debts could have been paid off, no mortgage foreclosures, banks would have had deposits to loan against instead of being forced to borrow from govt. People could have bought cars and homes, increasing production and jobs, bringing in more tax revenue to pay for the tarp.

Ed
January 03, 2011 at 7:59 pm

I am in favor of eliminating the tax deduction for mortgage and also for charitable donations. I make mortgage payments and donations but I don't see what either has to do with my taxes. It is nonproductive to keep up with little pieces of paper just to show to a tax auditor.