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Saturday, October 08, 2005

Tax-panel Will Consider Changing Mortgage Interest Deduction

This surprises me.  I didn't think mortgage interest and the capital gains provision on the sale of a home would be on the tax reform table.  But when the deficit problem is this big, and the projected changes in the alternative minimum tax open up an additional $1.2 trillion dollar budget gap, a $61.5 billion dollar deduction is a tempting source of revenue:

Tax Panel to Consider Modifying Mortgage-Interest Deduction, by David Streitfeld, LA Times: ...[D]ebate is starting among policymakers about reining in one of the most sacred cows of American public policy: the mortgage-interest deduction and other generous tax benefits granted to homeowners. A presidential commission on tax reform will take up the subject for the first time Tuesday. "Everything's on the table," said Charles Rossotti, a panel member... The mortgage-interest deduction saved homeowners $61.5 billion last year. No one expects the commission to recommend its elimination. Instead, the panel probably will consider scaling back the deduction for mortgage interest on second homes or home equity loans, and changing the deduction for property taxes, among other things. The stakes in such a discussion are huge. Changing the tax benefits for homeowners, even if done slowly, could cause short-term convulsions in the market as buyers recalculate what they could afford. ... Any proposed shift will encounter strong and possibly overwhelming resistance. But with a rising budget deficit, the prospects for change are much greater than they've ever been, say those involved in the debate. ... Eight years ago, capital gains taxes were eliminated for sellers who had profits of as much as $250,000 (for individuals) or $500,000 (for couples). ... Some policymakers and analysts are beginning to wonder whether such breaks are providing the wrong incentives, giving hefty deductions to millionaires buying Beverly Hills estates as well as to speculators snapping up Las Vegas ranch houses hoping to turn a quick profit... Bush specifically charged the panel to take account of "the importance of homeownership and charity in American society." That led many to conclude that the homeowner deductions were safe. ... But ... the mood changed over the summer. ... One reason for the shift: the expected demise of the alternative minimum tax. ... At a meeting in July, the nine panel members agreed unanimously to recommend eliminating the alternative minimum tax as an unfair and poorly designed parallel tax system. Because their mandate is to be revenue-neutral, that required them to come up with $1.2 trillion in other receipts over the next decade...

    Posted by on Saturday, October 8, 2005 at 12:45 AM in Economics, Taxes | Permalink  TrackBack (0)  Comments (19)

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