As I have said before, I hate doing my yearly tax form because it is so complicated. Consequently I have been in favor of a much simpler tax system, ie one without all the loop holes and deductions and credits. I dont see why the federal tax is not as simple as sales tax.

Having said that, I never expected to see it change so I was surprised to see Obama even mentioning the largest tax deduction: home mortgage.

I think the mortgage tax deduction is a bad idea but I never expected anyone to be able to touch it. By saying we need the money and the rich can afford it anyway, he is able to touch it. Nice.

Think about it. Who does the mortgage deduction really help? It helps banks. It tricks you into thinking you can afford a bigger house while at the same time raising house prices. Do you really need an incentive to buy a house? This interest deduction has gotten twisted up in our debt-society brains.

Reading the comments about the article though, I am reminded of my fellow Americans and their confused thinking. People that think it is communist to cut a tax deduction and fail to recognize that they are asking the government to help them buy a house. And all the people that worry about millionaires and who clearly arent.

Ironically, if this crisis is bad enough, it could allow us to restructure the government significantly. Simplify tax laws, remove sacred cows like the farm subsidies and actually get the "small government" Republicans are so fond of saying they want. We could even revitalize American business by removing the burden of health care from companies.

There is so much potential here and common ground yet you would never know that based on the public rhetoric. As a country, we have decided we are two teams in a football game and we have to fight any change on principle, often without even thinking about it. It is silly.

Mortgage Deduction Looks Less Sacred

By NICK TIMIRAOS

FEBRUARY 27, 2009

Wall Street Journal

The president's budget takes on what has long been considered a sacred cow by trying to reduce the mortgage-interest tax deduction for top earners.

The president's budget seeks to raise $318 billion over the next decade by lowering the value of itemized tax deductions for the wealthy -- including interest paid on home mortgages. Households that currently pay income taxes at the 33% and 35% rates would only be able to claim deductions at the 28% rate. That means that for every $1,000 in deductions, a household in the top tax bracket would realize a tax savings of $280, down from the current $350. The proposal wouldn't take effect until 2011.

The mortgage-interest deduction for owner-occupied homes is estimated to cost the government $100 billion this year, making it the largest government subsidy for housing and one of the most expensive tax deductions.

But many economists have long argued that the deduction doesn't actually have a significant impact on home ownership, and instead mainly subsidizes the cost of buying a home for the richest Americans, who would buy homes even without it. Some have blamed the mortgage-interest deduction, in part, for spurring borrowers to take out larger mortgages in order to maximize their subsidy.

Nearly 80% of the benefits from mortgage-interest and property-tax deductions go to the top 20% of taxpayers in terms of income, according to Urban-Brookings Tax Policy Center, while only 3.5% of the benefits go to people in the bottom 60% of income earners. Most lower- and middle-income homeowners don't qualify for the deductions because they don't itemize deductions on their tax returns. During the presidential campaign, Mr. Obama proposed a 10% mortgage-interest tax credit for homeowners who don't itemize.

But economists have also faulted the mortgage-interest deduction for inflating prices in supply-constrained markets such as Manhattan and coastal California. "If supply is fixed, a demand subsidy will just push up prices, making housing less affordable for ordinary Americans," says Mr. Glaeser.