Senator Mark Warner (D-Va.), working with Sen. Saxby Chambliss (R-Ga.) and 29 other senators, is preparing to introduce a broad, bi-partisan plan to reduce federal spending and reduce the deficit. But it’s not clear yet whether the plan will include any change to the mortgage interest deduction. VAR views any proposed change to the MID with, shall we say, a certain amount of concern — especially these days when we really don’t want to rock the boat any more.
Last summer, Virginia’s junior senator struck up a conversation on the Senate floor with his friend Saxby Chambliss, a Republican senator from Georgia, about the need to address the nation’s crippling debt in a meaningful way.
After months of intense, behind-the-scenes work with other senators from both sides of the aisle, they are preparing to roll out what they say is a sweeping plan designed to do exactly that.
Chambliss and Warner’s plan is based on the one endorsed (by an 11-7 vote) by the bipartisan presidential deficit commission — but never send to the House or Senate. (In fact, their group of includes two Democrats and two Republicans who were on the commission.) Their goal is to knock $4 trillion off the deficit within 10 years — that’s beyond the $138 billion deficit reduction expected to come courtesy of the Affordable Care Act (aka "ObamaCare").
But one of the deficit-reduction committee’s recommendations was to limit the mortgage interest deduction to principal residences (and not equity loans), and to change it from a deduction of mortgage interest to a tax credit equal to 12% of the entire mortgage payment.
Assuming a $250,000 home, 30-year-fixed mortgage, 5% interest. Mortgage payments would be about $1,342 per month.
|Current MID||Proposed "12%" plan|
|First year||$3,476 tax savings||$1,932 tax credit|
|First five years||$16,827 tax savings||$9,662 tax credits|
|First 10 years||$32,033 tax savings||$19,325 tax credits|
|Life of loan||$65,279 tax savings||$57,974 tax credits|
So the original plan would cost homeowners a bunch more. (Not surprising, of course; the point is to reduce the deficit and part of that is reducing tax write-offs.) But if Chambliss and Warner’s deficit reduction proposal mirrors that one, you can bet VAR and NAR will be taking a long, hard look at it, and at the effects on the recovery.