Eliminating the home mortgage interest deduction

The U.S. tax code gives generous subsidies to housing such as deduction for home mortgage interest, property tax and exclusion from aspects of capital gains taxes. The Wall Street Journal reported some senators are hesitant to eliminate these popular home mortgage interest deductions in fear of further upsetting an already troubled housing market. But many experts and academics argue that these tax incentives are expensive and their removal could save the Congressional Budget Office about $215 billion by 2021.

President Barack Obama has proposed to limit, not eliminate, the deduction for home owners as part of a plan to limit other deductions for families with more than $250,000 in yearly taxable income and individuals who make $200,000 or more a year. The proposal would limit the value of itemized deductions from 35 cents on the dollar to 28 cents. The news source reported the proposal estimates $400 billion in savings over 10 years with the limitations.

But the National Association of Home Builders recently responded to Congress's discussions on the mortgage interest deductions, saying eliminating the deductions would have a disproportionate impact on younger, middle class families who will no be able to own a home without the benefits, thus hurting their financial prospects in the long term.

In the short term, the elimination of the deduction would upset the already fragile housing market by lowering housing demand. This will push down home prices and drive up foreclosures. The association believes that any policy change that makes homeownership harder to achieve at a young age will harm wealth accumulation in the middle class.

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