| Government Affairs |
MID Faces Threats of Elimination Yet Again
Home mortgage interest deduction facing threats of elimination yet again. In revamping the tax code, Congress is eyeing three basic approaches to the home mortgage interest deduction: eliminate it completely; limit the deductions for higher incomes; or, have it changed to a tax credit.
These devastating bon mots are particularly apparent in the "discussion drafts" presented by House Ways and Means Committee Chairman Dave Camp (R-MI) and Senate Finance Committee Chairman Max Baucus (D-Mont.). Each is their take on comprehensive tax reform. "Discussion drafts" are mark-ups of proposed legislation that are used to garner commentary and recommendations which end up as the final version of a bill.
The first option for home mortgage interest deductions—simply ending the MID completely—would bring on a fight that Congress cannot win, which will have direct translation to getting re-elected as the fight would be with people who can contribute substantial sums to independent expenditure committees for campaigns. Taxes would go up not just for the wealthy but for most middle-class homeowners as well.
The second option, limiting MID for higher incomes with no offsetting tax reduction, will bring on the same fight and would only cause taxes to go up for most middle-class homeowners, which are votes.
So Congress will doubtless look to the easiest (read: most politically expedient) move—switch the home mortgage interest deduction to a tax credit. The nonpartisan Congressional Budget Office opined that:
"this option would gradually convert the tax deduction for mortgage interest to a 15 percent nonrefundable tax credit… with the maximum amount of mortgage debt that could be included in the credit calculation at $500,000 [current ceiling is $1 million], and the credit could be applied only to interest on debt incurred to buy, build, or improve a first home."
To be sure, there are other approaches such as the way-too-logical tactic of leaving the home mortgage interest deduction the way it is (and has been for over 100 years). Forewarned is forearmed; keep alert for a "Call for Action" on the home mortgage interest deduction.
