I think after the housing debacle there is no debate that at some point we need to eliminate the home mortgage deduction. If you are for free markets and limited government intervention I can't think of a more appropriate deduction to eliminate. If Congress was smart they and Bush should have eliminated this deduction once it was clear the housing market was appreciating above historical norms.
The home mortgage deduction can't be eliminated. It simply can't. It's political poison for both parties who desperately want to increase their share of the vote amongst the fickle suburban voter.
The reason, partially, is this: Many people factor in the savings from the mortgage deduction into their decision whether or not to buy a house in the first place. If you're talking about a 30-year mortgage, a family that borrows $300,000 at 4.75% would pay $1,560 a month ($1,187 of which is interest in year 1). That same family would be entitled to as much as $300 a month back thanks to the mortgage deduction. It's just too significant and too much a part of the decision to buy a house for anyone to remove it without seeing a flood of new, government-caused foreclosures.
