PRESIDENT Reagan has thrown his support behind a retention of one of the most popular federal income tax breaks - the mortgage interest deduction for homeowners.Skip to next paragraph
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Saving the deduction at this time - when historically high interest rates and steep housing prices characterize the housing market - makes good sense economically and socially. The objective of home ownership for all Americans who aspire to own their homes warrants government support.
Moreover, Mr. Reagan's unqualified backing for the mortgage deduction also underscores once again how difficult it would be for Congress and the White House to agree on any wholesale overhaul of the United States Tax Code. Mr. Reagan maintains that statements he made last month about refusing to rule out the possibility of ending the mortgage-interest deduction as part of a comprehensive tax-reform plan were misunderstood. The President was subsequently criticized by Democratic presidential contenders Walter Mondale and Gary Hart for not categorically ruling out an elimination of the homeowner tax break.
The Treasury, for its part, is currently working on a plan to simplify the tax system. The plan is expected to be announced later this year, after the November election. And several tax-reform proposals are now being pushed in Congress, including variations of a so-called flat tax that would eliminate most deductions and impose flat tax rates on all taxpayers.
There is certainly a strong case to be made for tax simplification. The current tax system is replete with a hodgepodge of tax credits, exemptions, and deductions that raise very real questions about the extent to which the tax system has become inequitable. On the other hand, what also needs to be kept in perspective is that in most (but not all) cases deductions have been designed to redress either a genuine business or taxpayer need, or to achieve a legitimate social objective.
Merely attempting to eliminate the mortgage deduction would have brought an army of lobbyists to Washington to oppose such a plan - homeowners, bankers, home builders, home suppliers. One can also imagine what might happen if proposals were made to end other popular deductions, such as those for charitable contributions, interest payments other than mortgage interest, and state and local taxes. And many deductions and credits are in effect normal accounting devices. If such deductions are left intact for businesses, could they be eliminated for individuals? And vice versa.
Proponents of comprehensive tax reform have their work cut out for them.