In the latest in a series of Congressional hearings on tax reform, on Oct. 6 the Senate Finance Committee held a hearing focused on homeownership incentives. Although participants generally cautioned against making changes to the mortgage interest deduction (MID) before the housing market stabilizes, and some urged leaving the current law in place permanently, several Senators and witnesses offered proposals to ultimately scale it back.
Dr. Karl Case, a senior fellow at Harvard University’s Joint Center for Housing Studies, advised lawmakers to phase out both the mortgage interest and property tax deductions once the housing market is restored to health and GSE reform is completed.
Richard Green of the University of Southern California argued that Congress should phase out the MID over 10 years once prices stabilize to encourage owners to both buy smaller houses and repay mortgages more quickly. He suggested replacing it with a refundable tax credit to direct a greater portion of the subsidy toward lower-income borrowers.
Former-Sen. John Breaux (D-LA) reminded members that the 2005 Mack-Breaux Commission established by former President George W. Bush proposed turning the MID into a 15 percent tax credit limited to $412,500 in mortgage indebtedness.
According to a report issued in advance of the hearing by the Joint Committee on Taxation, in 2009, 36.5 million households claimed $420.8 billion in itemized deductions for mortgage interest. Many tax reform advocates have argued that savings from reducing the MID could be used to lower overall tax rates.
The hearing was held as part of a larger Congressional effort to examine different areas of the tax code to inform future efforts at comprehensive tax reform. A video of the hearing, lawmaker statements and complete witness testimony can be accessed at
http://1.usa.gov/nj7KrR.