Unless you slept through the month of July, you probably picked up on the federal debt ceiling debate that dominated headlines. Although much of the press and punditry subsided after the White House and Congressional leaders reached a resolution, the legislation signed by President Obama on Aug. 2 did little to settle the deficit dispute. Instead it passed responsibility to a bipartisan “supercommittee” and placed American home owners in the crosshairs of controversy.
Rather than trimming the fat from wasteful government programs, the Joint Select Committee on Deficit Reduction may decide to hit you up for cash by cutting your mortgage interest deduction as they attempt, by Thanksgiving, to slash the U.S. deficit by $917 billion now and $1.5 trillion over the next 10 years.
Why is the MID a target?
Although the categorization is arguably inaccurate, the federal government considers the mortgage interest deduction a “cost” of roughly $100 billion annually. Whether it’s lack of time or laziness, some on Capitol Hill are already jumping at the opportunity to reap new revenue at the cost of home owners (See Home Ownership Under Assault: 4 Issues Threaten Housing Market Recovery). Adding to MID’s risk of repeal, critics of itemized deductions have incorrectly labeled MID a perk for the rich.
What’s the mortgage interest deduction reality?
But 65% of families currently claiming the mortgage interest deduction earn less than $100,000 per year; 91% earn less than $200,000 annually. And it saves those families an average of $3,050 a year — money that can be used for living expenses, college funds, health care, and improving home value.
A reduction or repeal of the MID would essentially amount to a tax increase on the middle class at an average cost of more than $3,000 to itemizing taxpayers.
The popular tax deduction has been a part of the federal tax code for more than 100 years, helping to stimulate the economy by encouraging home ownership. In addition, housing equity has long been a source of funds for small businesses and therefore a source of jobs.
Still, some policymakers are keen to kill one of the few breaks enjoyed by American home owners — a group that already contributes 80% to 90% of all federal income tax collected yearly.
Timing may play a major role in the supercommitee’s cost-cutting pursuits. When the group first convenes on Sept. 16, they’ll have only two months to devise and pass their plan — hardly enough time to research, deconstruct, and revise wasteful programs. It becomes clear how MID could be considered low-hanging fruit.
If the mortgage interest deduction gets tangled up in the supercommittee’s web, the outcome will be devastating for home owners, buyers, sellers, and the economy. It will cost you an average of $3,000+ per year and limit your buying power.
Talk about adding insult to injury.
HouseLogic.com will be tracking developments around MID closely for the next 100 days. To stay up to date on the issue and help us as we fight to preserve the American dream of home ownership, “like” us on Facebook, follow us on Twitter, and join our email list by filling out the form on the top right corner of this screen.