Obama Mortgage Interest Deduction: Potential Ways to Fund Health Care Reform

The Federal government’s debt that the political class has run up over the decades is now at shocking levels, levels that may take generations of future Americans to pay off. The issue was a major factor in the recent midterm elections and every politician in Washington is tripping over themselves to prove they can cut the budget. But since they got us into the budget mess in the first place, do we really think they are the right people to get us out of it?

An article in the October 29, 2010 issue of Businessweek does not think so. According to the article and Alice Rivlin, who sits on the President’s commission to recommend ways to reduce government spending: The commission has excluded Medicare from their discussions, analyses, and recommendations even though it is one of the biggest and fastest growing part of the Federal budget.
Most Republicans on the commission are dead set against any recommendations that would raise taxes. Democrats on the panel are dead set against any recommendations that would change Social Security. According to Rivlin, the commission is paralyzed by politics, even though its final report is due in only three weeks. Given the division on the commission, and the fact that 14 out of 18 commission members must endorse a recommendation for it to be accepted for consideration by Congress, the odds of any concept being enacted is next to nothing. Now take this discouraging news and consider a November 20, 2010 Associated press article where the two co-chairmen of the President’s deficit reduction commission revealed some of their current thinking on how to reduce the deficit:

According to the article, both suggested that their recommendations will be unpopular and go nowhere in Congress. This raises the question then why even bother? One of their suggestions is to raise the full retirement age to 68 in 2050 and 69 in 2075. How does putting off these changes for at least forty years solve the short term and intermediate term national debt problem? Wealthier Social Security recipients would receive smaller Social Security payments. Good idea but when would this change be implemented, the next century? Talk about not taking a firm stand.
The article also sounds the bell of pessimism that the Businessweek article predicted, namely that few if any of the commission’s recommendations will be endorsed by the 14 required commission members, making the chance of any recommendation getting to Congress very low. Even if all of the current commission proposals were implemented, the Federal budget would not be balanced by 2015, an original objective of the commission. Given that one Democratic congressman was already quoted as saying: “This is not a proposal I could support,” regarding the commission’s Social Security recommendations, the balanced budget by 2015 objective is pretty far away from reality.

There were several other potential recommendations in the article that the commission might propose but each has a serious flaw. One option is to eliminate all Congressional earmarks, an action that would save upwards of $20 billion a year. However, since earmarks really serve as a clandestine way for politicians to fund their election campaigns, unless this recommendation is coupled with significant election campaign reform, our politicians are unlikely to give up this source of revenue for their perpetual re-election. Another recommendation is to eliminate the the deduction for the interest charged within mortgage payments. However, given the horrible financial shape of the housing market today, removing this benefit of owning a home would surely heap further ruin on an industry that is dragging down the economy. Thus, unless you can get the housing industry healthy enough to absorb another shock, this is also a nonstarter, at least in the short run. A third additional recommendation is to increase the gasoline tax by $.15 a gallon to fund transportation programs. Two things wrong with this proposal. First, how is this a deficit reduction recommendation? This expands government spending and has nothing to do with deficit reduction. Second, this proposal needs to be part of a bigger strategy as it relates to having a much wider national energy policy that takes into account energy independence, global warming, infrastructure. This is a tactic in search of an overarching strategy which does not exist.

Expanded Medicare Taxes- One of the final taxes being considered to help pay for health care reform is an expansion of the Medicare tax. Currently the tax is only levied on earned income (wages from your employer, etc.). By levying the tax on capital gains, dividends and other unearned income, and increasing the rate for high-income earners, the government could collect over $500 billion over the next year. However, raising taxes on unearned income is highly unpopular among the American public, and under the current proposal 80% of the tax increase would be paid for by the top 5% of taxpayers.

Learn more about Obama Mortgage Relief Plan Qualifications.

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