The Wall Street Journal reports today President Obama’s fiscal panel is considering a proposal that would scale back tax deductions and credits for mortgage interest, health insurance, and children.
On the surface, it would make sense to eliminate these policies. The mortgage interest deduction is more or less a subsidy to the real estate industry. It’s unfair to those who cannot afford a down payment to purchase property and was a contributing factor to the housing bubble. The child tax credit adds complexity to the tax code. The health insurance deduction perpetuates the employer-based health care system, driving up health spending while limiting choice and portability.
The problem is, none of these changes are being proposed as part of broader reforms to simplify the tax code and improve our health care system. Instead, they’re merely being looked at as a means of raising revenue. Americans for Tax Reform estimates that if not offset, this would translate into an effective tax increase of $2.4 trillion over five years.
Politically, none of these proposals would have a chance of going anywhere in Congress. This is especially true of the mortgage interest deduction, which is extremely popular and the subject of intense lobbying efforts by the real estate industry. With the housing market still weak, it’s unlikely that there would be much of a constituency for ending this subsidy.