Tags: mortgage | interest | deduction | cliff

NYT: Mortgage Interest Deduction, Once a Sacred Cow, Under Scrutiny

Tuesday, 27 Nov 2012 10:34 AM

Mortgage interest deduction, a popular item revered by many when it comes to filing taxes, might come under scrutiny amid talks to steer the country away from the fiscal cliff.

The White House and Congress are working to prevent tax breaks scheduled to expire at the same time automatic cuts to government are due to kick in, a one-two punch known as the fiscal cliff that could send the economy into a recession next year.

A deal would aim to involve measures that would bring longer-term fiscal reform as well, and that could include the end or revisions to the popular mortgage interest deduction for everyone or at least for the wealthy, experts say.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

“This is definitely a chance worth jumping for,” said Amir Sufi, a professor at the Booth School of Business at the University of Chicago, according to The New York Times.

“For a fixed amount of revenue, it’s better to remove deductions than increase marginal tax rates.”

Any such a measure, whether sweeping in nature or limited to high-income homeowners, would face backlash from the real estate industry.

“Until Congress introduces specific legislation, there’s nothing to say about any proposed changes to the mortgage interest deduction,” Gary Thomas, president of the National Association of Realtors (NAR), told The Times.

“However, it has always been the NAR’s position that the mortgage interest deduction is vital to the stability of the American housing market and economy, and we will remain vigilant in opposing any future plan that modifies or excludes the deductibility of mortgage interest.”

Such a move could drum up government revenue.

Thanks to the mortgage interest deduction, households saved $83 billion in 2010, according to figures from the Reason Foundation cited by The Times.

Politicians, meanwhile, are studying ways to pump more money into government coffers, though sticking points remain over taxes — Republicans oppose a White House proposal to hike taxes on wealthier households.

Markets, in the meantime, are growing edgy over the deadlock as Jan. 1 approaches, and fears are building that both sides will agree to a temporary stopgap solution that only delays making tough decisions.

“My fear is that the can gets kicked down the road for at least a six-month period” to strike a long-term fiscal deal, said Bonnie Baha of asset management firm DoubleLine Capital, according to Reuters.

“The market is going to hate it, especially the stock market.”

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

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