Mortgage, Other Deductions Targeted to Trim Deficit
Get widgets
Print
Facebook
RSS- By:
- Kirk Haverkamp | November 11, 2010
The mortgage interest deduction could be trimmed or even eliminated under a set of proposals issued today by the co-chairs of a commission charged with finding ways to reduce the federal deficit.
The report, to be sure, is only advisory and does not even have the backing of the full 18-member National Commission on Fiscal Responsibility and Reform. However, given the commission’s official stature, the recommendations raise the likelihood the mortgage interest deduction and other popular tax breaks will be on the table when the new Congress convenes next year.
$4 trillion deficit reduction plan
The report outlines a plan for realizing nearly $4 trillion in federal deficit reduction by 2020 through a combination of reduced spending and increased tax revenues. To get there, it suggests raising $1.1 trillion by eliminating all “tax expenditures” – a term referring to tax credits, deductions and exemptions, including the mortgage interest deduction, as well as other popular deductions such as the child tax credit.
The loss in deductions would be at least partially offset by sharply reduced federal tax rates for both individuals and corporations.
Variety of options proposed
That’s just a starting point, however. The proposal goes on to suggest that, if Congress wishes, it might retain part or all of the mortgage interest deduction, as well as deductions for the child tax credit, employer health care and retirement benefits by smaller reductions in basic tax rates.
Other options include keeping the mortgage deduction but eliminating it for second homes, home equity loans and mortgages over $500,000, or simply taking an across-the-board “haircut” on all federal tax deductions, starting at 15 percent and increasing year-by-year if overall reforms are not enacted.
The co-chairs - Erskine Bowles, chief of staff under President Clinton and former Sen. Alan Simpson, a Wyoming Republican - say their goals are to simply the tax code, reduce tax rates and broaden the tax base, as well as reduce the deficit. They also seek to reduce the various tax credits, deductions and exemptions currently offered; improve the U.S. business climate and increase compliance with tax laws.
They seek to balance both federal expenditures and tax revenues at a maximum of 21 percent of the Gross National Product each. Expenditures currently run 23.8 percent of GNP and revenues, due to the recession, have fallen to 14.6 percent of GNP in the current year.
Deductions could be traded for higher rates
They calculate that totally eliminating all tax credits, deductions and exemptions, including the mortgage exemption, would allow base tax rates of 8 percent, 14 percent and 23 percent for low, middle and high-income earners, with a 26 percent corporate tax rate. That compares to currently scheduled rates for 2011 of 15 percent, 25-28 percent and 36-39.6 percent for individuals and 35 percent for corporations.
They estimate that bringing back in the mortgage tax deduction and certain other “tax expenditures” such as the child tax credit, health care and retirement, and the earned income credit either partially or completely could be done by raising the base rates to 13 percent, 21 percent and 28 percent, respectively, with a corporate rate of 28 percent.
Spending cuts split between domestic and military
Their recommendations outline $200 billion a year in reduced spending, divided evenly between domestic and military priorities, for $2 trillion in savings by 2020. Savings on interest payments would account for another $673 billion over the next 10 years.
The proposals have drawn a mixed reception from the rest of the bipartisan commission, which was appointed by President Obama and is evenly split between Democrats and Republicans. The full commission is due to make its recommendations on Dec. 1, with the approval of 14 of the 18 commissioners needed to support any final report.
Call For Rates
800-419-1494
Speak to a lender now.
We will match calls to our toll free number with our network of lenders.See Today's Rates
Mortgage Rate Quotes
National Rates
| Loan Type | Today | +/- |
|---|---|---|
| 30 yr fixed | 3.72 |
|
| 15 yr fixed | 3.03 |
|
| 5/1 ARM | 2.75 |
|
Rates may contain points
Browse Mortgage Rates
Featured Guides
Browse our comprehensive guides to popular topics related to mortgage and personal finance.