A tax plan with interest
The tax-reform proposal recently unveiled by Dave Camp, chairman of the House Ways and Means Committee, has been praised by even Democratic-leaning commentators such as Jonathan Chait as “maybe the most impressive and ambitious domestic policy proposal crafted by a major Republican in a generation.”
Camp proposed reducing tax rates without increasing government borrowing by reducing tax preferences in the tax code such as the exemption for employer-sponsored insurance. Among these tax preferences is the deduction for home mortgage interest, or MID.
Faithful readers might recall my rant on the topic in 2009. The MID was not adopted to spur home ownership, it was intended to stimulate banks’ lending business. It has only a trivial impact on home ownership rates. It encourages the purchase of bigger, energy-hungry houses. Its benefits go overwhelmingly to the wealthy, not the middle class, at a cost to the federal treasury of more than $100 billion a year.
The MID under the Camp plan would have been radically scaled back. The size of the loan whose interest you can deduct would have been scaled back until by 2018 it reached $500,000. Interest paid on home equity indebtedness would not be deductible after 2014.I say “would have been” because even Republican congressional leaders are running away from Camp’s proposal as fast as their little legs can carry them.