The current deduction is now the second most expensive tax subsidy, expected to cost the US Treasury $104 billion in 2011. Many economists and budget watchers have long viewed it as a form of wealth transfer to the rich, since they benefit the most.
But the deduction also resonates with many people as one of the ways to make the so-called American dream of homeownership come true.
The real estate industry is quick to respond whenever the subject of making any changes in the deduction comes up.
Immediately after the co-chairmen’s report came out, Michael Berman, the chairman of the Mortgage Bankers Association, said the proposal “would have a devastating impact on both present and future homeowners in this country.”
The National Association of Realtors (NAR) said the proposed changes would lower real estate values by 15 percent, possibly increasing the number of foreclosures as home prices sink.
“It will effectively close the door on the American dream,” said Ron Phipps, the president of NAR in a statement. NAR called on the 1.1 million realtors to write or call Congress using such words as “I have been on the front lines of the housing crisis.”
When Congress first passed the interest deduction in 1913, it was very rarely used for mortgages. It wasn’t until after World War II when American veterans came home, took out loans, and started paying taxes, that the deduction became more important.