While President Obama’s proposed 2012 budget plan doesn’t specifically target the mortgage interest deduction by name, many believe it could be collateral damage from the 30 percent reduction in itemized deductions on income taxes — which the budget said is necessary to pay for a “three-year patch to prevent an increase in taxes on middle-class families through the Alternative Minimum Tax (AMT).
The Obama budget plan argues that the reduction “would bring these rates back to where they were during the last year of the Reagan presidency, and if enacted, this provision would be the largest single reduction in revenue-spending since the 1986 tax reform.”
But while most observers agree that the new budget plan could reduce the mortgage interest deduction for some homeowners, they differ on whether this is a good policy for the country and the housing market.
Keep the Mortgage Deduction
“As the leading advocate for housing and home ownership issues, NAR firmly believes that the mortgage interest deduction (MID) is vital to the stability of the American housing market and economy,” said Ron Phipps, president of the National Association of REALTORS® in an official NAR statement opposing any mortgage interest deduction (MID) cuts. “NAR is actively engaged on behalf of the nation’s 75 million home owners and 1.1 million Realtors® to ensure that the current deduction is not modified as was recommended in the Deficit Reduction Commission report.”
Ditch the Mortgage Deduction
“When you look at other countries, like Canada, that don’t have the mortgage-interest deduction, they have similar, if not higher mortgage rates,” said Mark Calabria, director of financial regulation at the Cato Institute, who wants to eliminate the MID. “All it does is run up house prices, which to me makes housing less affordable, not more. It also increases the volatility of prices.”