newjerseynewsroom.com

BY GERALD J. ROBINSON

NEWJERSEYNEWSROOM.COM

The home mortgage interest deduction, one of our most cherished and expensive tax subsidies, may be on its way out. If the recommendations of President Obama’s National Commission on Fiscal Responsibility and Reform are part of a deficit reduction package, the mortgage interest and other itemized deductions are toast.

More than 35 million Americans claim it, at an estimated cost to Uncle Sam of $131 billion in forgone revenue for 2012. Its sheer size and popularity has made it a political third rail. Cynics think Congress won’t dare touch it.

Now the breathtaking magnitude of the country's fiscal problems—a $1.3 trillion deficit last year and a steeply-mounting $14 trillion debt overall—may have the effect of a cold shower. Some Republicans and Democrats, concerned about our fiscal path as a matter of national security, are starting to work together to craft plans to reduce the deficit through both expenditure reductions and closing the backdoor subsidies implemented through the tax code.

And why subsidize the ownership of homes with a tax deduction and not other assets? Like automobiles? Or boats?

And what about the discrimination against tenants? Why should homeowners be permitted to deduct payments of mortgage interest and real estate taxes while residential rent is a wholly nondeductible personal expense. Insult is added to injury by the fact that part of the tenant’s rent is indirectly attributable to the landlord's deductible real estate taxes and mortgage interest.

The current tax code is riddled with deductions and credits that are nothing but out-of-sight back-door federal outlays, amounting to over $1 trillion of lost tax revenue, including the loss caused by the homeowners’ mortgage interest subsidy. There’s no likelihood of serious deficit reduction without slashing these out-of-sight costs.

The resistance of entrenched and lobby-rich industry groups to the elimination of the deduction will be a tooth and nail fight. “The mortgage interest deduction is one of the pillars of our national housing policy,” according to the Mortgage Bankers Association. “Limiting its use will have negative repercussions for consumers and home values up and down the housing chain.”

The National Association of Realtors with its huge army of real estate agents and lobbyists will perhaps be the most formidable foe. No sooner was a plan announced for the interest deduction’s elimination than it issued a “Call for Action” to its members encouraging them to make “quick phone calls to lawmakers asking them to defend the deduction from any cuts or reduction.” According to this industry group, “the mortgage interest deduction is vital to the stability of the American housing market and economy.”

But if it’s vital to the stability of the American housing market and economy, how come it’s not vital to the stability of the Canadian housing market and economy when the Canadian income tax does not allow the deduction? And how come the economy didn’t stagger in 1986 when the deduction for personal interest on loans for the purchase of cars and other consumer items was terminated?

The cries of alarm of the special interest groups seem to be just another example of their self-interested attempts to influence public policy to favor financial benefits for themselves and their constituents.