Obama has once again proposed limiting the value of the mortgage interest deduction for upper-income taxpayers as part of his FY 2011 budget. The administration tried, but failed, to implement a similar change in last year’s budget.
The budget proposes to limit the value of deductions for mortgage interest and charitable contributions for single taxpayers earning more than $200,000 and married couples earning more than $250,000. As drafted, deductions for mortgage interest and charitable contributions would be capped at 28 percent; households paying income taxes at the 33 percent and 35 percent rate can currently itemize deductions at those rates.
In a recent interview on simple but politically unthinkable ways to reduce the budget deficit, CNN’s Fareed Zakaria singled out the $100 billion mortgage interest deduction, calling it “a subsidy for homeowners to take on debt.” He noted that the United States has the same rate of ownership as Canada and Britain although neither of those countries have deductions for mortgage interest.