Could the deficit-cutting commission eliminate the mortgage interest deduction
The shadow of a house key falls over a mortgage application form.
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STEVE CHIOTAKIS: This week, we've been telling you about a commission that convened to throw out some federal deficit-cutting ideas. Along with hiking the retirement age and cutting entitlements, another thought floating around Washington now is to eliminate the mortgage interest deduction for home loans bigger than half a million dollars.
Jill Schlesinger is editor at large at CBS/MoneyWatch, and she's with us live from New York to talk about it. Good morning Jill.
JILL SCHLESINGER: Good morning.
CHIOTAKIS: This is a very popular deduction -- as a former mortgage holder, I was very happy I could claim this on my taxes. How much does the mortgage interest deduction play into the housing market?
SCHLESINGER: It is a pretty big factor, especially when you're talking about those big fat loans that are over half a million dollars. And obviously this affects your monthly cost and your housing expenses and if you're counting on getting a little bit of money back every year from Uncle Sam because of that deduction, you may say, "Hey I would've purchased a cheaper home had I known I would lose that deduction."
CHIOTAKIS: A little bit of money too. I mean that's really a lot of money when you think about it over the course of time. Do we have any example of anything like this from the past?
SCHLESINGER: We do. We have the Tax Reform Act of 1986 under President Reagan and that was when the deduction for personal interest which included interest on credit card purchases was phased out. Now here's the neat thing to consider. Since 1986 til now, it doesn't appear that the phase out of that deduction actually hurt the credit card industry at all. In fact we know that credit cards actually quant-zimbled quint-topled -- whatever the number is in those 25 years.
CHIOTAKIS: Alright, really quick Jill. The chances of this being done politically. Between 1 and 10, give me a number.
SCHLESINGER: I think that this actually if it's high enough threshold has probably a 6, and i know there's going to be big lobbying against it, but again for all these things to go through, there has to be a feeling that there is shared pain. If the upper income people think they're shouldering too much of the burden, its not going to work. But if its broad based and everybody is giving something up in order to cut the deficit, then I think there's some chances here.
CHIOTAKIS: Jill Schlesinger from CBS/MoneyWatch.
SCHLESINGER: Take care.