The interest deduction costs the Treasury more than $80 billion a year.
President Obama's 2011 Budget just announced surprised many in Washington for going after what has been called one of the "Sacred Cows".
The proposed budget, caps the value of itemized deductions based on a taxpayer's income, in essence eliminating the mortgage interest deduction
for single taxpayers making more than $200,000 a year. ($250,000 joint returns).
The move is designed to raise nearly $179 billion next year by increasing taxes on wealthier Americans.
- Current law allows interest on up to $1 million in total mortgages on first and second homes to be deducted.
- The MID is highly regressive tax policy, meaning that the wealthiest people with the biggest mortgages benefit the most.
- Last year over 70% of homeowners with a mortgage used the benefit.
Many of those watching the issue thought there may be a shot at reducing the benefit in other ways. Disallowing interest deductions on a second
home and homes equity loans would reduce the over all benefit.
The National Association of Realtors was quick to offer a stern warning that such a move would be counter-productive to the improving housing market.
"This proposed change in the Mortgage Interest Deduction will result in further erosion of home prices and home values", a spokesman said.
The Mortgage Bankers Association also started firing up their lobbying. In a prepared statement just issued, MBA's Chairman Robert E. Story, Jr. states,
"Reducing the federal deficit is vital to the long-term health of the US economy and our industry. However, we believe it can and should be done
without negatively impacting the already-fragile housing market."
Story further commented, "Limiting the mortgage interest deduction and imposing additional taxes on lenders will only make economic recovery
more difficult."