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Mortgage Deduction . . . Crossing the Rubicon

Posted by Larry Doyle on February 27th, 2009 1:18 PM |

The mortgage interest deduction has been a cornerstone of American tax and housing policy. In fact, I can’t count the number of times I conversed with my accountant about maintaining mortgage debt based upon the feeling it was the one deduction the government would never touch.  Well, never just pulled into the driveway!

For clarification purposes and at the request of a number of readers, allow me to address this deduction. As proposed in President Obama’s budget, for those households currently paying taxes in the 33% and 35% brackets, the mortgage deduction would now be at a 28% rate. The proposal would not take effect until 2011. 

This Mortgage Deduction Looks Less Sacred. Its effect can and is hotly debated by economists and housing analysts. In my opinion, though, there are a few points not debatable. This initiative is another method of achieving wealth redistribution. It will make housing more expensive at the margin. It will put pressure on housing in general and in upper income areas specifically. Given that there are no initiatives proposed to support those needing Jumbo mortgages, this tax change will only further negatively impact this sector of the market. 

Lastly, is this Obama’s “crossing the Rubicon?” Don’t think for a second that this initiative just developed. How and why did we NEVER hear about this during the campaign? Did he know how negatively it would be received? 

In summary, having “crossed the Rubicon,” how far does he penetrate into the territory? 

We’ll be watching, but knowing how wildly optimistic his growth projections are in his proposed budget, Obama will need more $$$. The mortgage interest deduction just became fair game. 

I need to call my accountant.

LD






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