CBO Outlines Pros and Cons of Proposals to Reforms to the Mortgage Interest Deduction
On December 8, 2016, the Congressional Budget Office (CBO), a nonpartisan agency that provides budget and economic analysis to Congress, released a new report outlining the pros and cons of 115 proposals to increase revenue or decrease spending including reforms to the mortgage interest deduction.
The Options for Reducing the Deficit: 2017 to 2026 report includes a detailed analysis of the United for Homes proposals to reduce the amount of a mortgage eligible for mortgage interest tax relief from $1 million to $500,000 and to convert the deduction into a 15% non-refundable credit.
The report finds that enacting the United for Homes reforms would:
- make the tax system more progressive,
- would promote home-ownership by ensuring that more low and moderate income families could benefit from mortgage tax relief, and
- would generate significant savings.
The CBO also notes that, as currently written, the mortgage interest deduction largely benefits higher-income taxpayers who would have become home-buyers with or without the deduction.
While the report points to some possible downsides to reforming the mortgage interest deduction, including decreasing the tax break received by higher-income homeowners, it suggests that most of these can be mitigated by phasing in the reforms.