trial balloon: scaling back the mortage interest deduction

[phantom power]

(a catch by Atrios)

The drama in Washington today centers on efforts to get to the bottom of conversations, and the ultimate result of one such effort may be the indictment of one or more Bush Administration officials, which would be a big deal. But don't lose sight of something that might be of greater immediate interest to the public: the fact that President Bush's tax reform panel, which is expected to send him its recommendations by November 1, is proposing to scale back two of the nation's most popular tax breaks, for home mortgage interest and employer-paid health insurance.

The panel is proposing the rollback as a way to compensate for its also-proposed elimination of the alternative minimum tax, which is affecting more and more middle-class taxpayers every year and is in serious need of fixing. Still, as one Washington-based economic analyst points out to First Read, while this may be good policy, it won't play well in town halls. Unless these recommendations somehow go away between now and November 1, tax reform may not look so much like the savior of the GOP domestic agenda.

http://www.msnbc.msn.com/id/9542847/

[dcfirefighter]

1. A similar thread in GD

Where I've been one of the few voices who support rolling back the Home Mortgage Interest Deduction.

The downside is that people in mortgages now need to be protected. I suggest lowering the $1M limit by $100,000 a year for 5 years, after which time, the deduction will be limited to one house. (the limit now allows you to deduct the interest you pay on up to $1M in mortage debt, or about $60,000 a year).

I maintain that the deduction merely increases home prices, by allowing people to afford larger mortgages. This benefits sellers rather than buyers, and does not encourage homeownership. It merely enriches existing property owners.

In GD, I listed several ways to increase homeownership, generally by reducing the price of housing by increasing the supply.

#1 reduce property taxes against buildings.
#2 increase property taxes against land values - redevelops brownfields and intensifies development in urban areas. Also takes the wind out of land speculators, putting more urban land to productive use.
#3 reduce wage taxes (decreases cost of construction, raises employment, decreases cost of living, and raises wages)
#4 reduce sales taxes, allowing savers to spend less on other living expenses, while employing more people in retail sales, manufacturing, and agriculture.
#5 expand IRAs so that people can easier save for a down payment.