If you take mortgage interest tax deductions, the next 100 days could have significant financial implications for you, thanks to Congress’s new federal debt ceiling plan.

The compromise legislation created an unusual mechanism — an evenly split, 12-member bipartisan supercommittee — that could call for major cutbacks on real estate write-offs by Thanksgiving.

All it will take is a single vote by a lone senator or House member who breaks with his or her party to put the mortgage interest deduction into serious play.

Here is what’s about to unfold and how it could affect you: The legislation signed by the president Aug. 2 calls for a two-step increase in the federal debt ceiling plus spending cuts of about $917 billion. It also created the Joint Select Committee on Deficit Reduction to slash an additional $1.5 trillion from the deficit over the coming decade.

The committee is required to vote on a plan to achieve these objectives by Nov. 23, using revenue increases, spending cuts or a combination. If the committee members cannot agree on a plan, or if either chamber of Congress votes it down, automatic and severe spending cuts of $1.5 trillion will be imposed equally on the Department of Defense and domestic programs including Medicare provider payments.

The structure of the committee is akin to a jury room rigged with high-power explosives that will detonate if the jurors fail to reach a verdict. Membership consists of six Republicans and six Democrats — three each from the Senate and House — chosen by party leaders. To approve a final package of deficit cuts and extend the debt ceiling, all that will be needed is a simple majority of seven votes.

House and Senate leaders selected their six members this week: Democratic Sens. Patty Murray (Wash.), Max Baucus (Mont.) and John F. Kerry (Mass.); Democratic Reps. James E. Clyburn (S.C.), Xavier Becerra (Calif.) and Chris Van Hollen (Md.); Republican Sens. Jon Kyl (Ariz.), Patrick J. Toomey (Pa.) and Rob Portman (Ohio); and Republican Reps. Jeb Hensarling (Tex.), Dave Camp (Mich.) and Fred Upton (Mich.).

The selections appear to include members who have taken stances in the past that are consistent with party positions. Democrats typically favor revenue increases to help close the deficit, whereas Republicans generally want to slash spending without raising taxes.

But there is a real possibility that one or more members on either side could be so concerned about the prospect of painful automatic defense or social-program spending cuts that they would break party ranks.

That compromise might well involve new revenue, and the mortgage interest deduction is one of the lowest-hanging fruits. Lobbying groups who seek to preserve housing write-offs already are gearing up for battle on Capitol Hill. The National Association of Realtors sent an urgent alert to its 1.1 million members asking them to directly “engage their members of Congress on the importance of preserving real estate tax provisions” during the coming weeks. Officials acknowledge that the supercommittee’s structure, with its guaranteed punishments for failure aimed squarely at Republicans (defense spending) and Democrats (social programs), makes it more difficult than usual to influence the final outcome.

After decades of being considered politically sacrosanct, why are homeowner mortgage write-offs suddenly on the chopping block? Sheer size is the No. 1 reason. The congressional Joint Committee on Taxation estimates that the home mortgage interest deduction will cost the federal government $100 billion during fiscal 2011 and $107.3 billion in 2012. Between 2008 and 2012, the cumulative write-offs for mortgage interest are projected to total just under half a trillion dollars.

Among the options open to the supercommittee: Lower the maximum mortgage amount eligible for interest deductions to $500,000 from the current $1.1 million; replace the deduction with a tax credit that would be usable by lower- and moderate-income owners as well as those with higher incomes; eliminate interest deductions on second homes; and phase out the deductibility of homeowner property tax payments.

Defenders of the write-offs argue that high levels of homeownership are essential to economic growth and social stability and fully justify the tax system preferences they receive. National opinion polls regularly find widespread support for the write-offs, even among renters. Also, academic and trade group studies project that any abrupt, across-the-board reduction in the deductibility of mortgage interest would have a severe impact on home values, possibly sending them plummeting by as much as 15 percent.

Critics, on the other hand, consider the write-offs inherently unfair: They’re skewed to benefit upper-income owners disproportionately and are highly concentrated geographically along the West Coast, the Northeastern states and Mid-Atlantic.

Where’s this debate ultimately headed? It’s much too early to predict. But any way you look at it, real estate write-offs could be in greater political jeopardy in the next three months than they have been at any time in the past 25 years.


2011, Washington Post Writers Group