For the third straight year, the Obama Administration has proposed limiting the value of the mortgage interest deduction by limiting the amount that wealthier tax payers can deduct.
In the budget for fiscal year 2012 released today, the MID cuts are presented as a way to pay for a “patch” on the Alternative Minimum Tax (AMT) by limiting the rate at which high-income earners can itemize tax deductions.
“The President has called on Congress to work with the Administration on corporate tax reform that will simplify the system, eliminate special interest loopholes, level the playing field, and lower the corporate tax rate for the first time in 25 years,” said the Office of Management and Budget today.
The administration has proposed a similar reduction in the impact of the MID during the past two budget cycles. Last year’s budget proposal based deductions on income, effectively eliminating the mortgage interest deduction for single taxpayers making more than $200,000 a year, $250,000 for joint returns.
The cap on itemized deductions, designed to raise nearly $179 billion by increasing taxes on wealthier Americans, mirrored a similar effort in fiscal year 2009. Aggressive lobbying from the housing lobby and financial services interests killed the initiative both years.
With concerns rising over the federal deficit, fewer families becoming homeowners and support for homeownership softening both within and outside of the Administration, the housing lobby may have a more difficult fight on its hands this year.
Today John Carrey at CNBC editorialized for an end to the MID and last week, Howard Gleckman wrote in Forbes that the MID now costs $210 billion annually. Together with the deduction for state and local property taxes, and the exclusion of capital gains taxes on owner occupied housing, tax subsidies will cost more than $2 trillion over a decade.