Mortgage Interest Tax Deduction Soon To Go? 

Is the mortgage interest tax deduction soon to be eliminated? The Super Congress set up under the debt ceiling deal may be headed to just such a move. 

The debt ceiling deal is a triumph in realism. How so? It is a statement that the Congressional situation is such a mess that it is unlikely the legislative body could pass a law on something so obvious as it being considered at 12 noon each day and not night. How does the deal reflect this? Simple. It essentially gives up the ghost on trying to find specific cuts to make the $2 trillion in cuts called for actually happen. Instead, it calls for the creation of a Super Congress backed up by trigger mechanisms. 

So, what is this Super Congress? It is a 12 member panel set up to consist of six Republicans and 6 Democrats. They are then given a finite time period to come up with a solution to the specific cuts and their recommendations become law. What if they can’t figure out a solution within the prescribed time period? A trigger provision is enacted that starts cutting big chunks of money out of things like the defense budget. 

What does any of this have to do with the mortgage interest tax deduction? The answer is the Super Congress just might limit it or eliminate it outright as a way to raise tax revenues. This group pretty much seems to have carte blanche to do whatever they like and the idea of eliminating this tax deduction is a fairly popular one with those who believe we need new revenue sources to deal with the national debt problem. 

The key is going to be the makeup of the Super Congress. If each party puts up members from the fringe of their groups, then no deal will be struck and the mortgage interest deduction will survive. Ah, but what if more moderate members are put on the panel? We may see both parties put up people like Tom Colburn who are willing to do the right thing even if it means they don’t get re-elected. In such a situation, all bets are off. The panel would probably slash spending in a number of areas, modify social security and create new tax revenue schemes of which eliminating the mortgage interest deduction could be a big one. 

So, what will ultimately happen? If I knew that, I would be playing the lottery! My best bet is we will get extreme members on the panel and no deal will be met. Having said that, there is little doubt that something major is going to have to be done soon. It is going to be a very interesting election next year.