Ways to reduce federal deficit include changes in homeowner deductions

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The article ‘Ideas to cut the federal deficit could cost homeowners billions’ on latimes.com looks at some of the options the Congressional Budget Office has proposed to reduce the deficit. Among the ideas that might be of interest to homeowners:

• Get rid of all write-offs for state and local taxes, including property taxes. That would pump $343 billion into federal coffers from 2010 to 2014, and $862 billion by 2019.
• Clamp a 15% cap on the value of all itemized deductions -- not just mortgage interest and property taxes but also charitable contributions, medical expenses and casualty losses. The revenue windfall: $1.3 trillion over 10 years.
• Revert to the capital gains approach that prevailed before 1987. Rather than taxing most gains at 15% as the current code does, the CBO plan would exclude 45% of gains from taxation and tax the remaining 55% at an individual’s regular tax rate.

At the top of the list was to ‘slash deductions for homeowner mortgage interest from the present $1.1-million limit to $500,000, phased in with $100,000 annual reductions starting in 2013.’ I’m not sure why we ever needed a million-dollar-plus deduction in mortgage interest each year in the first place.

-- Lauren Beale

Thoughts? Comments?