People love tax breaks and benefits like mortgage interest tax deductions, child tax credits, and pre-tax health insurance plans – but the White House indicates that the tax deductions and tax breaks are costing the government about $1 trillion per year. These deductions and tax breaks, along with potential cuts to the $700 billion in defense spending and freezes on domestic discretionary spending, are currently in jeopardy, as an 18-member panel of commission officials put forth a report titled “The Moment of Truth,” to balance the budget by 2015. Unfortunately, as recent in the news, this panel was unable to come to an agreement and missed the number of votes needed to force congressional action, although congressional action may still come from these recommendations.
The National Commission on Fiscal Responsibility and Reform was created by President Barack Obama in February, in an effort to take steps to reduce the growing budget deficit and improve the long-term fiscal condition of the US. The panel is made of lawmakers, business, and labor leaders.
Balancing the budget by 2015, if you don’t include interest payments, would mean finding roughly $250 billion annually. The other goal for the panel was to come up with recommendations for improving the long term fiscal situation, and hopefully avoid deficits like these in the future, although Medicare, Social Security and, Medicaid benefits are not expected to come into negotiation since any changes to these programs would have to be phased in over several years and would therefore delay any budget improvements for about a decade.
Mortgage Interest Deduction a Likely Target
The report from the panel focuses on removing the Mortgage Interest Deduction to primary mortgages, primary residences, and mortgages up to $500,000. In the past, financial institutions and real estate companies have worked hard to keep mortgage interest deductions for homeowners – and would likely continue to do so if there was an attempt made to remove the deduction.
Immediately after the Commission released the report, the Mortgage Bankers Association and the National Association of Realtors came out strongly against removing the deduction or limiting it because it would hurt an industry that is still trying to recover not to mention it could drop home values 10-15% simply because a house is now more expensive to own if you have a mortgage.