Eliminate the Homeowner Deduction?

Adam Lashinsky
I have a shameful feeling to report about the recommendation by President Bush’s tax panel to drastically reduce or eliminate the deduction homeowners currently can take on their income taxes: It’s probably good public policy.

Tune in to a special LIVE Business Block this Saturday beginning at 10am ET for the latest on Hurricane Wilma's path and its possible economic impact.

Why am I so ashamed? Duh! Because I’ve got a mortgage and this policy will hurt me big time, if not on my current home then on the next one I buy. Then why am I for it? Well, I didn’t say I was for it. What I said was that it might be the right thing to do.

Let’s step back. Currently homeowners can deduct, from their taxable income, the interest they pay on mortgages up to $1 million in value. That’s an obvious boon to home ownership, to home building, to home brokering, and yes, to the mortgage racket. But it’s also clearly a tax break for the rich. It gives people with giant mortgages a way to reduce the taxes they pay, though they of course currently pay at a higher rate than less well-off people.

Now, the panel’s proposal is to eliminate the mortgage deduction altogether and replace it with a 15% tax credit. In other words, you’d simply subtract from your tax bill 15% of the interest you paid on your mortgage. So far, so good. The catch: the panel wants a cap on the total size of the mortgage that qualifies for the credit. It will vary by region, but average around $265,000 nationwide. That will not be a big deal where home values are low. But in coastal areas, where houses cost a mint for rich and poor alike, it will be devastating.

I figure this proposal will be lobbied to death long before I need to worry about it personally. But if the panel can figure out a way to equitably adjust the cap by region of the country — and I mean equitably — it just might be a good idea in the fairness department. I doubt anyone in the industries I mentioned above will think it’s fair in the least. But you know what? They’ve had a good decade under the existing laws.

Adam Lashinsky (alashinsky@fortunemail.com) is a senior writer for Fortune Magazine and a regular FOX News contributor.

Ask FNC's business team YOUR questions by e-mailing yourquestions@foxnews.com and check our FOX Means Business page each week for answers.