October 12, 2005
President Bush's tax advisory commission has its eye on the jumbo mortgages that finance the McMansions so popular with affluent taxpayers. The panel is leaning towards recommending limiting the tax deduction to the first $300,000 of a homeowner's mortgage.
The recommendation is likely to be extremely unpopular with some of Bush's most loyal supporters but economists and tax policy mavens say it would go a long way towards reducing the rapid upward spiral in housing costs, which are driving many wage-earners out of the market. If adopted, it would likely be phased in over a number of years.
Currently, the tax deduction cap for home mortgages is $1 million. In affluent coastal areas, high wage earners have taken to trading up to ever-bigger homes every few years, in part because the mortgage payment affords a sizeable tax deduction.
Coupled with high health-care costs, however, the rapid appreciation in housing prices is squeezing the middle class and causing concerns about a housing bubble that must eventually be deflated.
The bipartisan panel is also expected to recommend scaling back the deduction for employer health-insurance costs, another deduction that mostly favors higher-income taxpayers. A tax would be applied on any amount over the agreed-upon ceiling.
The panel is expected to reject a national sales tax on grounds that it would be too complicated to administer and would be a hardship on working-class families.
Proposals for a flat tax - an income tax with everyone paying the same rate - are still under consideration, according to Jeffrey F. Kupfer, the commission's executive director.
Bush is not obligated to accept the panel's recommendations, due Nov. 1. However, he is under pressure to find new revenue and the jumbo mortgages are a compelling target.
