Subject: Mortgage Interest Deduction
Comment: Oct. 16, 2005
I am most distressed that the home mortgage interest tax break might be reduced from its current one million cap. We were recently relocated to San Diego, CA due to a corporate merger, and we purchased our home based on the current tax laws. The current mortgage interest tax break was a major component of our purchasing decision (ie, the mortgage we could afford). Knowing that we could deduct the mortgage interest enabled us to purchase in this extremely expensive housing market. Should the government reduce or remove this tax break, hundreds of thousands of people like us will find themselves unable to afford the homes we have financed! Selling the homes for what was paid for them will become difficult, if not impossible, because the housing market will dramatically plunge, especially in those “hot” markets in which we currently find ourselves. The new cap will determine housing values; anything over the mortgage interest deduction cap would become “unwanted/unaffordable” property. The result will be that people will no longer be able to afford to stay in their homes, as the increase in taxes combined with the mortgage payment will force them out. Additionally, they will not be able to sell the house for what they owe on it, so there will be a huge glut of foreclosures, which will depress the housing market even more, and every part of this country would feel the disastrous impact. SURELY you can CLEARLY see the horrendous consequences of this decision to reduce the mortgage interest deduction, especially when homes cost more now than they ever have. At the very least, a change in this tax deduction should absolutely NOT apply to those who purchased under the one million cap law, only to those purchases after the law has changed (as was the case when the deduction was lowered from an unlimited mortgage interest deduction to deductions of up to one million).
One of the purposes of this panel is to reduce the complexity of the tax code. I heard that one idea was to “adjust” the mortgage interest deduction to various amounts, depending upon what housing market/part of the country one lived in. Some parts of the country could deduct up to $350,000, other parts up to $400,000, and so on. Obviously, THAT IS NOT a simplification, but another complication, of a revised tax code. Who decides what those numbers would be? How will they come up with those figures? Will those figures change as the market changes? Will people in San Diego have a higher deduction than people just outside the city limits of San Diego? Where will the lines of demarcation be drawn? To have various limits based on location would open a pandora’s box of resentment, complexity, frustration, and contention. Clearly, not a simplification. Additionally, how one would figure out the tax hit based on how much that person was allowed to deduct would also probably require ANOTHER complicated, mind boggling formula for the taxpayer to agonize through. As you well know, we have enough of these bizarre formulas already. I absolutely think if the mortgage interest deduction is lowered in any way, the housing market, the banking industry, the construction industry, and the taxpayers will be placed in great peril and the health of the economy would suffer dramatically. I implore this panel not to take this country down that road.
I believe I heard it mentioned by someone connected with this panel that there are only 30% of taxpayers who have mortgages over $350,000 (but I might not have that percentage correct). The implication was that changing this deduction would not affect that many people. I was astounded!!! Thirty percent is ONE THIRD of all taxpayers!! A HUGE number of citizens would be seriously impacted from this decision. It is inherently wrong to change the rules in the middle of the game. That is exactly what you would be doing to hundreds of thousands of people if you change the amount of mortgage interest they can deduct from what it was when they purchased their most important and critical asset, their home. Don’t do that to this country.
San Diego, CA