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Legislation | Taxation Brief

Mortgage Interest Deduction Under Scrutiny

New York Times:

There are broader approaches, too. In its proposed budget, the Obama administration plans to focus on top earners. The administration suggests capping deductions at 28 percent for high-income households, those earning more than $250,000.

Under the current rules, a high-earning household deducting $20,000 in interest payments would probably apply a 35 percent rate to that amount and receive $7,000 in tax savings. The Obama budget aims to limit that tax saving by capping that rate at 28 percent. If that rate were applied to $20,000 of interest payments, the saving would fall to $5,800.

The United States would capture the difference. Over the next 10 years, that 28 percent cap could increase tax revenue by $584 billion, according to the Treasury Department.

While many economists have openly opposed the mortgage interest deduction for some time, few politicians have been willing to do so for fears of their constituents. However,¬†recent statements from both sides of the aisle indicate that even this deduction may be on the table in the “fiscal cliff” negotiations.

Extending the Payroll Tax Cut from Both Sides of the Aisle


Democratic Senator Kent Conrad told Reuters that extending the payroll tax cut would have “the biggest bang for the buck on economic growth.”

“We need to do something on stimulus as part of the overall fiscal cliff. We have to do something because the economy’s not growing fast enough,” said Charles Schumer, one of the Democratic leaders in the Senate.

Max Baucus, chairman of the Senate Finance Committee, told reporters that the payroll tax cut extension needs to be “on the table,” in any discussions over resolving the fiscal cliff.

Republican Senator Rob Portman agreed that the tax cut had to be part of fiscal talks, and Democratic Representative Chris Van Hollen has long said the tax break would help the economy.

The Obama administration has been adamant about not extending the tax break for the third year in a row.

This potential willingness to, or maybe posturing about, extending the tax cut is a departure from previous bipartisan statements to the contrary.