POLITICO’s Byron Tau reports that the White House has ruled out eliminating the mortgage-interest deduction for those making under $250,000 a year. That’s a popular position, not least because, according to the Tax Policy Center, the average taxpayer gets $559 from the deduction.
But it makes tax reform a lot trickier. The deduction is one of the biggest in the federal government; the Tax Policy Center projects it will cost $1 trillion over the next decade. The administration has proposed limiting it for high earners, but that proposal only raises only about $40 billion over a decade – a mere 4 percent of the deduction’s total cost. By the end of the decade, cutting the deduction would reduce the budget deficit by about 10 percent. The administration’s proposal would barely dent it:
You see that tiny green line running along the X axis at the bottom? That’s the administration’s proposal. The comparison is even more stark if you look at what would happen if the Bush tax cuts expire and the debt ceiling deal’s cuts take effect (the above chart assumes neither happens). In that scenario, dropping the mortgage deduction fully eliminates the deficit, raising $162.8 billion, compared with a $130 billion projected deficit.
If the administration wants to reduce the deficit in the medium term, ruling out major changes to it is a move in the wrong direction.