In February, we handicapped a 75% chance that Congress would reduce the mortgage interest deduction, when consensus among our clients was only a 32% likelihood. Since Congress is getting closer to acting, we are publishing a free copy of our February 2011 report and circulating it around D.C. so we can help officials make an informed decision.
The most likely scenario, a reduction in the principal balance of deductible mortgage debt to $500,000, raises only $5 billion per year for the IRS, with most of the pain being felt in a few high-priced markets.
The less likely scenario, but the one recommended by the deficit commission, will replace the deduction with a 12% tax credit that would also have a $500K principal cap. This would raise $48 billion per year for the IRS, and significantly increase taxes on those with higher mortgage balances, and actually reduce income taxes for those who currently own a home but don’t pay enough mortgage interest to itemize.
We are not policy makers, so we are not taking a stand. We are, however, all about delivering great, fact-based research to help executives make great decisions. Let’s hope policy makers might the right decisions for our country, both in the short-term and the long-term.