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Chipping Away at Mortgage Deduction a Bad Idea
A March 23 editorial in USA Today argues that the mortgage interest tax deduction is a huge housing subsidy that boosts the deficit and disproportionately benefits the rich. It adds that criticism over the Obama Administration’s budgetary proposal to limit the deduction for people in the top tax bracket, a move that would raise about $31 billion in revenue annually, is questionable. And it goes on to suggest that a gradual reduction in the deduction applied to new mortgages could yield significant benefits. “The best approach might be to gradually scale back the $1 million deduction limit on new mortgages,” the editorial concludes, “perhaps by $100,000 a year for five years. That would increase fairness and reduce the deficit. It would also aid the housing industry now by encouraging people to buy while the limit is still high and help to prevent another bubble once the market recovers.”
Following is an opposing view from NAHB Chairman Joe Robson that appeared with the USA Today editorial:
President Obama's budget proposal to cap the value of the mortgage interest deduction for higher-income taxpayers appears to be facing a stiff wind on Capitol Hill. And for good reason.
It makes absolutely no sense to be talking about raising taxes on home owners and home buyers at a time when the housing industry is suffering its greatest crisis since the Great Depression.
The root of today's economic problems can be traced to falling home values. Any attempts to reduce the value of this important housing incentive would further destabilize the housing market by increasing the after-tax cost of housing, forcing down demand and putting even more downward pressure on home values at the worst possible time.
This would lead to more foreclosures, more problems with troubled mortgage-backed assets and a deeper slump in home sales, which would drag down home prices even more.
Proponents of this plan argue that this would directly affect only the top 2% of households. Though this sounds reasonable, the harsh reality is that reducing the value of the mortgage interest deduction would increase the cost of housing for many middle-income families, especially in high-cost areas such as California, the Northeast and other major metro areas. Buyers in these markets, particularly younger families, rely on the deduction to help them afford their homes.
Chipping away at the mortgage interest deduction is not the way to raise additional revenue in this economic climate — it would only hurt the ailing housing market and economy. Congress should instead focus on policies that will stimulate housing demand. This will spur home sales, reduce excess inventory, stabilize home values and help revive the economy.
Now is not the time to set a dangerous precedent that could mark the beginning of the end of the mortgage interest deduction as we know it. The mortgage interest deduction is the bedrock of our national housing policy. Now, more than ever, it needs to be protected, not plundered.
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