Mortgage Interest Deduction Debate…

As election season heads into the homestretch, focus on the candidate’s economic plans has tightened.  For Mitt Romney, greater attention is being paid to the various tax loopholes and deductions he might eliminate, to counter the 20% individual income tax reduction he’s been campaigning on.

Prior to the first presidential debate, Gov. Romney noted in an interview with a local Fox affiliate in Denver that a possible option for his tax plan would include giving everyone a $17,000 limit on deductions.  According to Romney: “You could use your charitable deduction, your home mortgage deduction, or others – your health-care deduction,” Romney said. “And you can fill that bucket, if you will, that $17,000 bucket that way. And higher income people might have a lower number.”

The Obama administration responded by ruling out elimination of the mortgage-interest deduction – at least, for those making under $250,000.

Not surprisingly, this set off a debate about the importance of a deduction utilized by almost all homeowners in the United States.

While the National Association of Realtors is firmly behind the deduction, many seem to think letting it go might not be the worst thing.

Personally, I’m on the fence.

I certainly enjoy being able to utilize the deduction as a homeowner, but I wouldn’t be opposed to losing it, as long as it were replaced with something comparable. 

While I do agree that homeownership provides a level of stability to the economy, I don’t believe that people generally purchase homes based on the incentive to use the deduction, nor do I believe people wouldn’t purchase a home if it weren’t available.

Further, with a much larger percentage of the population becoming renters – be it by choice or by necessity – as part of the added fallout from the housing crisis, I don’t know that they should be penalized for choosing not to purchase again, in light of what’s happened.

In the end, I’m for whatever best helps the middle class.  Until recently, a home was the largest asset/investment for many middle earners and it provided one of their largest deductions – on average, about $559 according to the Tax Policy Center.  While that might not seem like much, it does make for a nice break to a segment of the population with limited options in the world of federal deductions.

Check out the arguments yourself:  Syndicated columnist Froma Harrop is against the deductions and believes “It encourages taking on more debt, discriminates against renters, subsidizes one kind of spending over others and favors the upper incomes. It advances the questionable public goal of making more Americans into homeowners. And it costs the Treasury about $100 billion a year.”  You can read her full post, here.

James Yockel is the CEO of Greater Rochester Association of Realtors and he believes “Any changes to the mortgage interest deduction could jeopardize the housing market, which has just begun to stabilize, and any of the recovery gained since the economy has turned the corner from the recent recession.”  You can read his full post, here.