If Republicans proposed limiting the mortgage interest deduction to just households with incomes below $200,000, and they eliminated the mortgage deduction for second homes, as well as the state and local tax deduction, the real property tax deduction, the state and local bond interest exclusion, and the investment income on life insurance exclusion, all of which predominately benefit wealthy households, they then could also cut the employee side of the payroll tax in half without adding a dime to the deficit.
The Room to Grow grab-bag eliminates the mortgage interest deduction twice, once each to pay for two separate tax credits. Obviously, you can only eliminate it once, and I prefer Carroll’s approach here.
Later, he writes,
Congress must stop punishing the working poor for getting married. Married couples should be allowed to keep their previously qualified for benefits through the first few years of marriage.
This sounds like a jerry-rigged solution to me. I think that the answer is to get rid of the steep benefit-eligibility cliffs for everyone. See my post on a universal flexible benefit.
Read his whole piece. I like it much better than Room to Grow.
Why a cliff at $200k income- punishing those that produce more? It would make more sense to do it on the basis of the loan value (e.g., can deduct the first $100k of borrowing, 75% of the next 100k, 50% of next 100k, etc.)
This would certainly cause property values to drop, thus lowering the real estate property tax base (causing those rates to rise?).
The “unfair” aspect of it is that many loans were taking out with this deduction in mind. Without it, some people may end up defaulting. Perhaps it would be better to phase it in for new loan originations.
Still, overall, it is one deduction that makes little sense. I suppose the fear is that, without the deduction, large corporate property owners are advantaged, and everyone becomes a renter, at the mercy of variable rents and less able to survive retirement and periods of inflation.