There are a lot of weird ideas on Capitol Hill, but none that has as much trouble finding a backer as the thought of tinkering with the federal income tax deduction for home mortgage interest.
Any politician worthy of the name would just as soon campaign against the flag and motherhood as champion an assult on the homey grail of writing off the interest on the mortgage.The home mortgage deduction is so popular that two members of the House have introduced a resolution to protect it at any cost and are busy signing up cosponsors. Several powerful trade associations have teamed up on a campaign to save the home mortgage deduction and already are piling up PAC money. Some lenders mailed out letters with the year-end statement of mortgage interest warning homeowners their tax deduction is threatened unless they grab pitchforks and march on the Capitol.
What's curious about all this is that the home mortgage tax deduction is not being threatened by anyone.
Chairman Dan Rostenkowski, D-Ill., of the House Ways and Means Committee has said it is sacred, and his press aides will gladly play the tape for any doubters. The only House member who ever even mentioned the remote possibility of taking it away has since issued a stirring retraction. The entire Bush administration quacks in unison at the question of whether cutting the mortgage deduction would meet the "duck test" for new taxes.
The mortgage tax deduction is a duck all right - a sitting duck. Fat to the point where it can no longer fly, the home mortgage writeoff is waiting to be knocked off, or at least knocked down, and the people scurrying to its defense know it.
What was once an effective inducement to home ownership for all Americans has become the number one tax shelter for the rich. Deducting the interest on a mortgage is increasingly irrelevant to lower-income Americans as their dream of home ownership is left behind by soaring house prices.
Part of the reason prices are going up so fast is that the tax deduction encourages families to spend more on housing. For upper-income families, the ability to write off interest payments is an irresistible incentive to buy a bigger house and make bigger mortgage payments. Where else will the government give you $1 back for every $3 you spend? The deduction encourages overinvestment in housing and drags down the nation's savings rate, many economists believe.
What was once a boon to homeowners is now a boondoggle for homebuilders and lenders.
In the name of encouraging home ownership, Congress has been conned by the argument that if one home is good, two homes are better. There are more families in America that can't afford to buy one house than there are who really need two, but the tax code now subsidies the latter and ignores the former. Once-bucolic beaches are now crowded with condominiums that would not exist if the tax law didn't subsidize second homes. Mountain resorts from the Blue Ridge to Colorado are monuments to the mortgage deduction for second homes.
It is the builders of these houses, time shares and condos who are clamoring to protect the deduction - in the names of the carpenters, cleaning crews and ski instructors whose jobs depend on them - not the two-home families who know they can claim few favors from the government.
It is the lenders who are leading the fight to save the income tax writeoff for home equity loans, a loophole that was poked open when Congress was knitting the simplified tax code a couple of years back.
In order to bring down overall tax rates, they eliminated a lot of little deductions, including the one for interest on consumer loans. The mortgage interest deduction, of course, was sacred, and so was the deduction for home improvement loans and second mortgages. Faster than you could say "business opportunity," banks began pushing home equity lines that could be used like a MasterCard. "Credit cards in drag," as some critics call them.
In parts of the country where house prices have escalated nearly every year - the Washington area and all of the Northeast, California and Florida - homeowners are buying cars and sending kids to college and using charge cards on home equity lines and getting a tax deduction just like in the good old days.
In places like Des Moines, Denver and Dallas, where house prices are stable if not declining and homeowners generally have less equity, far fewer families are able to slip through the loophole for home equity loans. Inequity loans, they ought to be called, because they favor some regions over others, homeowners over non-homeowners and those with a lot of equity in their house over those with little.
The homebuilding, lending and real estate industries - which do the talking on these issues in Washington - defend equity loans on the ground that they are pro-homeownership because they make houses a better investment. If Congress begins to search for revenue, however, the lobbyists will be willing to sacrifice the second home and home equity loans first, and then the deduction for real estate taxes - a Republican favorite because it hits hardest at high-tax Eastern, Democratic states - before giving ground on the sacred mortgage deduction.
Congress took the first bite out of the basic mortgage deduction just over a year ago, but almost no one noticed. In conference, House and Senate tax writers agreed to limit the deduction to the interest on mortgages of no more than $1 million.