Many homeowners take a tax break on the interest they have spent on their mortgage the previous year. However, if the Obama administration has its way, the mortgage interest tax deduction might soon be a thing of the past.
Last year, Congress rejected proposed cuts to the mortgage interest tax deduction, but the White House included the cuts again in the 2010 budget. Some analysts calculate that the tax cuts could save $208 billion in the next 10 years.
Many Democrats view the mortgage interest tax deduction as a tax entitlement. They believe it should be considered for reform the same as other entitlement programs such as Medicare, Social Security and Medicaid.
Cutting tax deductions is not a new idea
The idea of gaining revenue by cutting tax breaks is not new. President George W. Bush created a tax reform commission five years ago that suggested ending the mortgage tax deduction, but popular support for the deduction killed the plan.
President Obama’s current proposal calls for cutting the deduction rate for those making more than $250,000 per year to the same rate paid by the middle class. The rationale is that the tax cut will correct tax code inequities that allow the wealthy to benefit from the tax deductions to a greater degree than middle-class families.
Concerns about the effect of mortgage deduction elimination
Members of Congress in both parties are concerned about the effects of the tax break elimination, especially during a recession, on the fragile housing market. Those in favor of keeping the mortgage deduction say that it encourages people to buy homes rather than rent. On the other hand, recent studies suggest that the deductions do little to convince middle class and lower middle class people to buy homes.
As we move into a new year with many uncertainties, many tax deductions will be on the financial block. It will be interesting to see which entitlements actually get cut.