Debt ceiling issues bring focus on potential mortgage interest tax deduction decrease

The Washington Post recently reported that disagreements on how to handle the debt ceiling have caused lawmakers to again discuss the possibility of decreasing the mortgage interest tax deduction.

The Center of American Progress said eliminating the tax deduction, which allows homeowners to write off a portion of their mortgage payments, could save the government $100 billion per year. Mark Zandi, Moody's Analytics chief economist, told The Washington Post in a recent interview that the deduction would not improve affordability in the housing market, and owners of bigger homes with larger mortgages and higher incomes will still be able to claim a deduction.

"Any tax benefit is simply capitalized into house prices, which rise as the deduction fuels demand," Zandi said.

But Bob Nielsen, chairman of the National Association of Home Builders, wrote in The Washington Post that the deduction would cause house prices to drop further, hurting an already struggling market.

"The mortgage interest deduction has been embedded in our tax code for nearly a century, and this longstanding policy has helped millions of Americans achieve the dream of homeownership," Neilsen said.

But a recent Rasmussen Report found only 43 percent of Americans believe buying a home is the best investment a family can make, the lowest level of confidence in home-buying ever recorded.  

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