Is it time to kill the mortgage interest tax deduction?

Wait a minute all you upset homeowners. Don't kill the messenger. Or at least focus on the original asker of the question.

That would be Howard Gleckman, who writing at the Tax Policy Center's TaxVox blog pondered whether this tax deduction is the best way to subsidize homeownership and even if we want to continue to use the tax code to prop up residential property purchases in the first place.

"To even ask seems almost un-American — almost like suggesting we replace barbeque at the Memorial Day picnic with, oh, tofu," writes Gleckman. "But a close look suggests there is much less to the hallowed deduction than meets the eye. Thus, we'd miss it much less than we think."

The deduction, which is projected will cost the U.S. Treasury $131 billion in fiscal year 2012, really isn't an efficient way to encourage homeownership, says Gleckman.

Most benefits go to high-income households that would probably buy a house with or without the deduction. 

Plus, since taxpayers who don't itemize, regardless of whether they own their home or rent, can't claim the deduction, it's no surprise, says the Tax Policy Center senior research associate, that most of the tax subsidy goes to upper-bracket taxpayers.

The disparity across the country in who claims the mortgage interest deduction and just how much they claim also is the subject of a recent analysis by the Tax Foundation and the subject of a post at my other Bankrate Taxes Blog, What's your mortgage's tax value?

Not a new idea: The cost of and disproportionate tax benefits for a select groups of taxpayers means that elimination of the mortgage interest deduction regularly shows up on lists of ways to change our tax system.

In fact, Dubya's blue ribbon panel directed years ago to find ways to make our taxes more efficient and fair proposed replacing the mortgage interest deduction with a tax credit.

That suggestion was a key reason why the final report was shelved and never heard from again the day it arrived on the former president's desk.

We're still waiting on the latest tax overhaul suggestions from Obama's similar group of experts. Any bets on what this new group might say about the mortgage interest deduction?

Concern about housing: Would the homeownership level (and thus the housing industry and all its associated businesses) collapse if the United States did away with the home loan tax break?

Probably not.

We're the only country that offers such a tax incentive, and folks all across the world still own homes.

The difference in those countries is that their residents tend to live in more size appropriate residences that they can more comfortably afford.

But thanks to the mortgage interest deduction, U.S. home buyers have a tax incentive to acquire more expensive properties. And we usually do just that.

Credits instead: A new Tax Policy Center study, Reforming the Mortgage Interest Deduction, examines the the current mortgage interest deduction as well as a variety of proposals to modify the tax break.

The group offer four alternatives it says will produce the same budgetary cost as the interest deduction:

• a 20 percent, nonrefundable interest credit    
• a 17 percent, refundable interest credit   
• a nonrefundable, 100 percent credit on the first $2,030 of mortgage interest and 
• a refundable, 100 percent credit on the first $1,490 of mortgage interest.

As you get set to read the full report, let me note a couple of definitions to keep in mind. 

First, credits, which reduce tax bills dollar for dollar, are generally more beneficial than tax deductions, even one as popular as the home mortgage interest write-off. 

And a refundable credit is one by which you can get money back from the IRS even if you don't owe the agency any tax.

All of the credits suggested by the Tax Policy Center would be available to home owning taxpayers regardless of whether they itemized their deductions or claimed the standard deduction.

One argument for replacing the mortgage interest deduction with a credit is that it would boost homeownership rates by making the incentive to buy a home more equal across income levels. 

Folks with low marginal tax rates and who don't itemize, for example, might consider buying a home because they could benefit from a mortgage interest credit.

Some winners, some losers: Of course, whenever a tax law is created or changed, some folks benefit at the expense of others. 

The tax code currently rewards most homeowners. 

Replacing the mortgage interest deduction with a tax credit would raise taxes for some while reducing taxes for others.

Generally, the study found any of the credit options would provide more of a tax benefit to low- and middle-income groups, blacks and Hispanics, residents outside metropolitan areas, and, among metro residents, those living in the Midwest.

Congressional considerations: The key question for Congress should be would a change in the tax break be good and cost-effective tax policy.

Unfortunately, the reality is that the question likely to be asked on Capitol Hill is are the groups that would get more from a change in the home tax break large enough voting blocs to justify a vote?

Did you consider the size of the tax deduction when you bought your house? Would losing this tax break drop you from the homeowner rolls?

source:dontmesswithtaxes.typepad.com

Tax overhaul over and out … for now

Hmmm. Six weeks ago the President’s Advisory Panel on Federal Tax Reform formally presented its recommendations on how to overhaul the current tax code. Now it looks the President himself wants to put the Panel’s report on the shelf. In fact, he apparently wants to shove it to the back of the bottom shelf so that it won’t get any attention during the coming mid-term elections. 

When this whole process began, the White House had hoped to use comprehensive tax reform as the theme for the coming State of the Union address. Looks like the speechwriters at 1600 Pennsylvania Avenue better get started on a new draft. Word started trickling out yesterday about the administration’s unease with the topic of tax reform. TaxProf has links to several publications reporting the change of heart. Basically, the “officialunofficial” word (that is, it came from an insider who didn’t want to be quoted) is that there’s “not enough manpower” at the Treasury Department to put together a realistic, workable tax overhaul plan that could be specifically cited at next month’s speech to Capitol Hill and the nation. 

The “unofficial unofficial” word (that is, the insider said ‘OK, here’s the scoop but you sure didn’t hear it from me because there’s no way in hell I’m becoming Scooter’s bunkie’) is that Bush and company, who watched their effort to restructure Social Security bite the dust, didn’t want to hear same song, second verse of voters bemoaning lost benefits, especially on the heels of questions about government ethics, hurricane response and recovery efforts and the Iraq war.

Since we’re not going to get to watch the complete tax code get revamped, the next best thing is watching whether Congress will continue some existing tax breaks. Basically, lawmakers must agree to extend these measures that originated in earlier tax bills but, in order to make the budget numbers work at the time they were passed, were phased in and/or granted only a limited existence. Now, budget concerns could doom them completely. The Washington Post reports that Bush, who previously watched his tax cuts sail through Congress, is putting on a full-court press to get his favorite ones extended.

Several, such as existing low rates for capital gains and dividends (an Administration biggie) and continuation of the child tax credit at its current $1,000 level, are alive beyond 2005 regardless of what happens in Congress this month. But extension of the measures was included in either the current Senate or House (or both) tax bills in hopes of forestalling future last-minute battles over the tax breaks’ existence.

2005, however, could be the last year for three popular tax breaks: the state and local sales deduction, the deduction for college tuition and fees and the educators’ classroom expenses deduction. If any of these will help you cut your coming tax bill, be sure you don’t waste them. This Bankrate articleoffers some tips on the steps you need to take by Dec. 31 to make sure you can claim these deductions on your 2005 return.

These three breaks have general Congressional support and are popular with taxpayers. Couple that with coming elections in which politicians like to tout all the fine tax breaks they’ve given the people, and it wouldn’t be a big surprise to see them remain on the tax books. But you never know what Congress might do, so to be tax safe if you can claim them, make sure you do it this year.

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Should rich homeowners get a bigger mortgage interest deduction?

I don't think so either.

But that's what the IRS has decided.

The IRS Office of Chief Counsel has sent agency staff a memo telling them that taxpayers can deduct interest on the first $1.1 million of a home mortgage. That's $100,000 more than before.

Basically, the IRS has decided that these folks, who already can afford a million-dollar-plus mortgage (or so we presume; who knows given the loan malfeasance we've seen, but that's for another blog item) get to automatically combine the statutory limits of $1 million in acquisition debt and $100,000 in home equity debt and then write off the interest paid on the $1.1 million loan amount.

Hmmm. So folks who can afford the maximum statutorily-deductible loan amounts for two separate products get to claim them in one fell swoop without actually taking out a home equity loan. Why do I hear the Church Lady's skeptical "How convenient" in my head every time I think about this IRS change of deduction heart?

I rant about elaborate on the increased mortgage interest deduction decision, which I was tipped to on Twitter by @JoeTaxpayerBlog (thanks, Joe!), over at my other blog, Eye on the IRS.

You can let me know if you share my misgivings about the increased write-off for rich homeowners by leaving me a note at that blog. Or, after reading that post, feel free to bounce back to Don't Mess With Taxes and leave your comments here.

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Mortgage interest deduction doomed!

Got your attention, didn't I?

It sure got mine when I saw that message in an ad on another blog.

OK, it didn't say "doomed." But that was clearly the implication.

In case you haven't run across it, the advertisement from the Association for Homeowners Across America shows a foot crushing a house. The text below the animated image says:

"Homeowners Beware! Congress is considering removing mortgage interest deductions. Under US tax code, mortgage interest on your home is deductible. Congress is debating altering mortgage interest deductions, putting your homeownership at risk."

Whoa! "Homeowners Beware!" "Removing mortgage interest deductions." "Homeownership at risk." Not exactly phrases any property owner wants to see.

Then there's the suggestion -- "Congress is debating" -- that Representatives and Senators are just hours away from signing off on legislation to eliminate this almost sacrosanct tax break.

My first thought on seeing the ad was, "Crap! How did I miss that bill?"

My second thought, after clicking over to the online petition the ad urges homeowners to sign was, "What a smarmy way to get people to join your group."

Yep, the last line of text in the ad is "Join AHAA and fight to stop Congress from squashing this deduction."

So what is AHAA? According to its Web site, the Maryland-based group is "a national nonprofit, nonpartisan membership organization" that "exists to improve the home buying and homeownership experience for millions of people who currently own homes or wish to buy a home."

A reasonable goal. So it really shouldn't have to resort to such scare tactics to pump up membership, which, by the way, costs $24 a year. But hey, you make up your own mind on whether AHAA is for you.

General info on the group can be found at its Web page. Or if you simply want to join the AHAA "save our deduction" effort, you can sign the group'spetition to Congress.

Now about that impending mortgage interest legislation: After I quit panicking about overlooked mortgage deduction legislation, I tried to locate an AHAA spokesperson for some clarification on the Congressional catalyst behind the group's petition.

Meanwhile, while waiting for word from AHAA (by the way, I'm still waiting), I surfed over to the Ways and Means Committee site, since it's the panel with constitutional jurisdiction over revenue measures.

There I found what I believe is the reason behind the recent mortgage interest scare.

In late September, the Subcommittee on Select Revenue Measures heard testimony on more than 20 tax proposals introduced during the 109th Congress. The subcommittee hearing wasn't designed to move any of these bills further down the road to enactment, but rather to see what was still out there and might be worthy of revisiting next year.

Sales tax solution: Among the bills that were dropped in the hopper but still awaiting Committee (and further) action are a couple of proposals to "simplify" the tax code.

One, H.R. 25, would create the FairTax, a national sales tax that would eliminate the tax system as we know it, including the mortgage interest (and all other) deductions.

Consumption-based tax systems have been floated on Capitol Hill for years, but with little success. I'll take a look at this proposal in the next day or so and comment on why it hasn't been embraced by all.

Flat tax formulas: Then we have the flat tax method, which also is regularly touted as "the" way to fix our current tax system.

The most recent proposal is the Fair Flat Tax (H.R. 5176), which would cut current tax brackets from six to three (15, 25 and 35 percent), triple the standard deduction amounts and tax ordinary income (for most of us, our salaries) and capital gains (investment income) at the same rate.

The mortgage interest deduction would remain under the Fair Flat Tax, but in a modified form. Characterized as a "super incentive," the bill's Universal Mortgage Deduction would be available to all homeowners, not just those who itemize.

Word from the White House: Finally, there's the President's Panel on Tax Reform. It issued its recommendations on ways to simplify tax code back in November 2005. One of the suggestions: Eliminate the mortgage interest deduction and replace it with a tax credit.

Even under the auspices of Dubya, this didn't go over too well. In fact, by this summer the president himself had backburnered his own panel's report.

So it appears that AHAA jumped the gun a bit with its dire warning of the demise of the mortgage interest deduction. Of course, it's always advisable to keep an eye on Congress since no one can guarantee what they will do or when.

But for the foreseeable future, homeowners don't have to worry very much about losing this tax break.

source:dontmesswithtaxes.typepad.com

Did the home sale tax exclusion kill the economy?

Did the 1997 tax law change that allows home sellers to exclude hundreds of thousands of dollars from their taxable income contribute to today's economic crisis?

Maybe.

At the blog Cafe Hayek, economists have been examining the housing bubble and what role public policy might have had in the housing price increases and the subprime meltdown.

"Maybe it wasn't speculative mania," writes Russell Roberts. "Maybe much of it was due to changes in public policy."

A tax boon for home sellers: The specific policy change under the economic microscope is one of the most hallowed homeowner tax breaks.

For the last 12 years, homeowners have been able to avoid capital gains taxes on net home sale profits of $250,000 if they are single taxpayers and $500,000 if they sellers are married couples filing jointly.

The beauty of the current law is that to get this tax break you don't have to buy another home within a specific time frame, as the home-sale tax law demanded of most pre-1997 sellers. You just have to live in the property as your primary home for two of the five years before selling.

When the bubble was inflating, folks made small fortunes buying homes, living there for a few years and then selling for a nice, nontaxable profit. It was a literal cottage (or ranch or colonial) industry.

The financial sector quickly joined home buyers, sellers and the housing industry in taking advantage of the once quite lucrative real estate market.

Now many folks are stuck with homes that are worth less than they paid, negating the benefit of the home sale exclusion.

And the lenders who helped any and everyone, regardless of qualifications, get into the housing game have helped bring the whole U.S. economy to the brink.

Some connected the dots: The contribution of the tax law to the housing bubble, says Roberts, has been largely overlooked.

"Do you think that had any effect on the price of housing? You bet it did. Vernon Smith [professor of law and economics at George Mason University and 2002 Nobel Laureate in economics] pointed out the impact in December 2007:

The joint housing and mortgage-market crisis once again reminds us that all financial implosions stem from the same cause: borrowing short and lending long without enough equity to weather periodic storms in the gap between.

But this bubble was different. Besides being fueled by housing purchases and repackaged loans, each with inadequate equity -- doubling down with other people's money -- at the end of the capital-gains rainbow was the right to take up to $500,000 of profit, tax free.

Cafe Hayek also cites BusinessWeek's Christopher Farrell 2005 article in which he said the housing boom at that time was built on disproportionate tax incentives that keep the stock market's rise in overdrive.

"As much as possible, the tax code shouldn't bias investment decisions," Farrell writes. "As it is, the tax code is too heavily weighted in favor of housing. The Urban Institute calculates that the government provides about $147 billion in subsidies to homeowners, including the mortgage-interest deduction and capital gains exemption."

The Tax Foundation's Tax Policy Blog, which gets a big hat tip for pointing us to Café Hayek, also has some thoughts on the economic implications ofhousing tax policy.

Breaking up tax breaks is hard to do: Of course, any time proposals to change homeowner tax breaks are offered, they are quickly scuttled. The most recent such instance was the President's Advisory Panel on Federal Tax Reform. Itssuggestions were quickly shelved.

Have you sold a home and taken tax advantage of the home-sale exclusion? The hubby and I have done so a couple of times.

And I must admit that the tax law worked quite nicely for us when weunloaded sold our Florida home in early 2005 just before that region's housing market crashed.

Would you support a change in the tax law to even out the taxes on all capital assets? Of do you think that homeowners should get special tax considerations (detailed here), for costs they incur while living in their properties as well as when they sell?

source:dontmesswithtaxes.typepad.com

Economy killing home tax break, redux

It's good to see the New York Times finally caught up. In today's edition, the paper looks at how a Tax Break May Have Helped Cause Housing Bubble.

It's a comprehensive review of the same topic blogged about here on Don't Mess With Taxes back in September in Did the home sale tax exclusion kill the economy?

You know the tax break that I talked about months ago and the Times examines today. It's the exclusion from taxable income of large amounts of profit reaped on the sale of a principal residence. Single filers can shield up to $250,000 from the IRS; file jointly and you get double the tax exclusion.

A break not offered elsewhere: The upshot of both the Times' article and the studies I cited in my earlier blog post is that the generous home sale tax exclusion law likely helped fuel the run up in property values.

Since real estate got this tax benefit not afforded other property such as stocks, housing became the hot investment. And our capitalist system soon began, at least in this sector and much to the belatedly admitted shock of former Fed Head Alan Greenspan, to run amok.

Of course, few things in life are cut and dried, so it's irresponsible to point fingers (your choice of digit) at just the tax code's influence on the housing market. But it certainly is a factor that can't be ignored.

The touting of home tax breaks: For decades, every lender and real estate agent has touted the tax benefits of owning a home and buyers have rationalized over spending on a residence by parroting the tax code breaks.

And in many, many cases everybody has come out just fine under the current arrangement. So, as the adage goes, we need to be careful about throwing out the baby with the bath water.

Who knows, given Capitol Hill's penchant for tweaking tax laws, there may one day be a refinement of this tax break. Earlier this year, lawmakers decided that the home sale's work-around application to second home offered a bit too much of a tax break. Beginning Jan. 1, 2009, a "Sold!" sign on additional real estate will cost the sellers more.

I doubt the primary residence sale exclusion will ever be rescinded, but we might one day see it made a bit more difficult, perhaps by requiring a longer occupancy time before reaping hundreds of throusands in nontaxed profits

source:dontmesswithtaxes.typepad.com

Accidental' mortgage interest deduction

The write-off of interest paid on a home loan, one of the most popular tax breaks out there, actually sort of sneaked into the tax code.

That's the word from Dennis J. Ventry Jr., acting professor of law at the University of California, Davis, School of Law. Ventry examines this iconic tax deduction in his paper The Accidental Deduction: A History and Critique of the Tax Subsidy for Mortgage Interest.

You can find out more about this itemized deduction's history and why many think that while it has been good for homeowners, it's been bad for the economy in my other blog, Eye on the IRS.

source:dontmesswithtaxes.typepad.com

Tax policy and the American homeownership dream

Joe Nocera in his Wake-Up Time for a Dream column today looks at whether the "financial crisis might well have been avoided if we as a culture hadn’t invested so much political and psychological capital in the idea of owning a home."

The question isn't new (I blogged about the madness of the mortgage interest deduction back in 2006), but it's worth reconsidering since this past week some lawmakers again began pushing for legislation -- and tax benefits -- that ostensibly make homeownership possible for more people.

Nocera's New York Times piece looks at the political history of the American dream of homeownership and examines the views of various housing advocates, journalists and economists on how we deal (or don't) with it.

The viewpoint that caught my eye comes from Edward Glaeser, a Harvard professor and contributor to the newspaper's Economix blog. Glaeser said that if homeownership had to be encouraged, an idea of which he was not at all convinced, it should be through a "flat homeowners' tax credit" rather than a home mortgage deduction, rather than with a tax break that essentially bribes people to buy bigger houses.

I agree with Glaeser. So do lots of others who in recent months have asked is it time to kill the mortgage interest tax deduction?

But it's not likely that we'll get rid of the home mortgage interest deduction, also known as the third rail of U.S. tax policy.

Nocera prefers the housing tax policy approach suggested by Gary Rivlin, author of Broke USA, about whom I just blogged in connection with refund anticipation loans.

Rivlin says the big policy mistake America has made as a culture is in promoting policies that encourage all home purchases, under any circumstance. 

"Why should the government help me buy a second home? Why should it subsidize a refinancing?" Rivlin asked. "We have missed the essential piece. The social good is in helping qualified first-time buyers own a home. That should be our goal. After that, people should be on their own."

The limiting of home-related tax breaks is a more financially and politically feasible option. In fact, in recent years, Washington, D.C., has taken steps to wean property-rich taxpayers from some tax benefits, such as the basis change for calculation capital gains on the sale of a vacation home.

Nocera's article offers a lot of ideas worth consideration when it comes to homeownership and how we deal with it through our tax and financial policies.

Given the state of the current economy (and future economic conditions), we -- taxpayers, homeowners and legislators -- need to start looking at tax-subsidized homeownership now.

source:dontmesswithtaxes.typepad.com

Builders' message to Congress: Don't mess with mortgage interest deduction

OK. The National Association of Home Builders (NAHB) delivered the message in the headline, but the trade group says that the admonition actually comes from a recent poll of likely voters.

The poll conducted earlier this month found that three of the five tax deductions people strongly support are connected to homeownership.

The mortgage interest write-off tops the home-related tax breaks, just a percentage point behind the itemized deduction for medical expenses.

The other three deductions that polled folks want to keep are for state and local taxes (including property taxes), charitable deductions and home equity loan interest.

Thanks for the information, NAHB, but there's really nothing to worry about. 

The last time the topic of ending the mortgage interest deduction got any serious consideration was back in 2005 when the President's Advisory Panel on Tax Reform, appointed by Dubya, suggested replacing this deduction with a tax credit. The report was dead on arrival.

So why do the survey? As I note in my Bankrate Taxes Blog item on this subject, Mortgage interest deduction safe (which I encourage you to check out as soon as you finish here!), politics plays a big role.That's obvious from the poll's title: Nationwide Survey of Likely Voters.

With the Nov. 2 midterm elections are coming up, what better way to keep homeownership and its many beloved tax breaks in the minds of candidates than by telling them what voters want?

The NAHB poll also was released just eight days before the first-time homebuyer credit finally expires, reminding lawmakers of the most recent tax benefit for the housing industry homeowners.

Possible tax reform concerns: And finally, the housing folks wanted their concerns, I'm sorry, the likely voters' concerns, out in time for the Senate Finance Committee hearing held Thursday on tax reform.

While the home mortgage interest deduction was only discussed briefly by one of the witnesses at the session to review the lessons of the 1986 Tax Reform Act, I guess the housing industry (and probably the mortgage lending sector, too) gets a little jittery whenever tax reform comes up.

And to cut them some slack,there is a tiny bit of room for worry. 

Let's face it. Although the majority of poll respondents strongly support housing tax breaks, about a third of Americans aren't homeowners. Heck, with today's foreclosure rate, the ownership level has probably dropped.

And even folks who do own homes don't always get to take advantage of the tax write-offs associated with their residences.

To claim the mortgage interest deduction and all of your property taxes, you have to itemize. Most people, including some homeowners, don't. They find that the standard deduction amounts are larger than what they have in itemized expenses.

Also, folks who've paid down the bulk of their mortgage or paid it off entirely don't have a lot or any mortgage interest to deduct.

Still, the deduction and other home-related tax breaks are sacrosanct to U.S. taxpayers and politicians. TheAmerican dream and all that.

So regardless of whether the mortgage interest deduction or other home tax breaks are threatened, expect to see continued preemptive strikes -- like the NAHB poll -- to make sure they stay just as they are.

source:dontmesswithtaxes.typepad.com

Rethinking mortgage tax breaks

As soon as people got through chewing up and spitting out the debt reduction panel's suggested changes to Social Security, they turned to its next controversial recommendation: reducing tax breaks for homeowners.

Blogs and traditional news media are abuzz about proposals by the chairmen of the National Commission on Fiscal Responsibility and Reform to tweak mortgage-related tax benefits. Most headlines scream some version of "death imminent for the mortgage interest deduction."

That is indeed one option in the draft report (actually a 50-page PowerPoint presentation) released last week by commission co-chairs Erskine Bowles, former chief of staff in the Clinton White House (at far left in the photo below), and Alan Simpson (right), former Republican Senator from Wyoming.

But the media focus has been a bit hyperbolic. 

Taxes, the deficit and reality: Elimination of the mortgage interest write-off, as well as most other tax deductions, would allow for a dramatic drop in individual income tax rates under the chairmen's Zero Plan.

Without having to make up for myriad tax expenditures, the Zero Plan would create just three personal income tax brackets of 8 percent, 14 percent and 23 percent.

That, of course, won't happen. So the commission chairmen offer scenarios where at least some form of the mortgage interest deduction remains.

They also kick around a second option, fashioned after the tax reform planintroduced earlier this year by Sen. Ron Wyden (D-Ore.) and Sen. Judd Gregg (R-N.H.), that calls for limits to the mortgage deduction.

Under the Wyden-Gregg plan, the write-off would be limited to interest on mortgages for primary residences. There wouldn't be any Schedule A claims for loans on second homes or home equity loans.

And that remaining home loan interest deduction would be allowed only for mortgages of $500,000 or less.

The loan cap would mean that the tax code -- that is, all us taxpayers -- wouldn't be subsidizing suburban McMansions that so many buyers opt for because, in part, they now can deduct interest on home loans of up to $1 million.

A touchy tax break subject: All of the proposals in the draft debt report are great starting points for a long-overdue discussion of the constantly growing list of tax breaks and the need for real tax reform.

The home mortgage deduction in particular needs to be reconsidered. I'll be the first to admit that it's provided the hubby and me lots of tax saving over the years. We're in our fifth house and also refinanced a couple of times, happily writing off all those mortgage loans' interest each April.

But this tax break, which is claimed by only about a quarter of taxpayers, is incredibly expensive. The New York Times notes that the mortgage interest deduction will cost the U.S. Treasury $131 billion in forgone revenue in 2012.

Again, because homeownership is such an emotional -- and heavily lobbied -- issue, the deduction won't be eliminated, even though homeowners in other countries (Australia, Canada) seem to get by just fine without it.

But capping the size of mortgages on which interest can be deducted is a reasonable first step.

Previous mortgage tax break proposal ignored: I suspect, however, that the draft report (or the final full one due to Congress by Dec. 1 if enough commission members agree to its content) will be for naught.

I'm basing my assessment on recent Washington, D.C., history. Remember Dubya's blue-ribbon tax reform panel? Don't feel bad; not many folks do.

The prior Administration's advisory board, also a bipartisan collection of respected fiscal and political types, suggested back in November 2005 that we replace the mortgage interest deduction with a tax credit equal to 15 percent of interest paid on a principal residence.

As a credit, the amount would be subtracted directly from any tax liability. And itemizing wouldn't be necessary to claim it, making things easier for filers, too.

None of that mattered. In fact, the audacity to target the mortgage interest deduction doomed that previous panel's report, which was never heard from again.

Maybe I'll be wrong.

Maybe the debt commission's tax suggestions will get some serious consideration.

Maybe the new blood on Capitol Hill will help kick-start tough budget and tax talks and keep them going.

And maybe we voters will one day quit punishing lawmakers and candidates who tell us the hard truth about what it takes for a government to live within its means. That it requires not just program cuts, but taxes to pay for what's left.

But I'm not holding my breath.

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