Eliminate tax deduction for mortgage interest ??

By proposing to curtail the tax deduction for mortgage interest, the president’s deficit commission is sounding an alarm.

The home mortgage deduction is one of the most widely used and expensive tax subsidies. More than 35 million Americans claim it, and the federal government estimates it will cost the Treasury $131 billion in forgone revenue in 2012. Its size, popularity and link to the emotionally charged American notion of homeownership has made it so politically sacrosanct that there are serious doubts whether Congress will even entertain the idea.

But by raising the specter of ending one of the most cherished tax breaks, the commission is trying to jar the public into recognizing the magnitude of the nation’s budget deficit and some of the drastic steps that might be needed to close it...

The commission chairmen also offered the option of capping the deduction at $500,000 on mortgages, rather than the current limit of $1 million. The prospect brought an angry outcry. House Speaker Nancy Pelosi blasted the commission’s suggestions, saying it would force middle-class homeowners to subsidize tax breaks for the wealthy...

Tax policy experts say that for all its popularity, the value of the deduction in public policy is debatable. It was intended to encourage homeownership, but housing economists point out that countries like Canada and Australia, which do not allow mortgage interest deductions, have homeownership rates similar to those of the United States...

Critics of the subsidy also argue that, despite its broad support, the benefits from the mortgage interest deduction flow disproportionately to the wealthy.  Calvin Johnson, a tax professor at the University of Texas, said that only those in the top third of wage earners even itemized their deductions, meaning that two-thirds of taxpayers weren’t eligible for the break...

The rhetoric of tax-cutting so dominates the political debate in Washington that many elected officials are reluctant to acknowledge that the federal government devotes as about as much money to tax breaks — $1.1. trillion — as it does to discretionary spending. 

More at the New York Times.  I find it interesting that a proposal to cap mortgage deductions at home values of $500,000 is described as a burden on the "middle-class."