SAN FRANCISCO -- The mortgage interest tax deduction beloved by many Americans is a logical target for raising revenue to deal with growing deficits, a leading housing economist said Friday.
"For fiscal sustainability, we need to get revenue," said Richard Green, director of the USC Lusk Center for Real Estate. The alternative to shrinking the tax break is raising taxes, he said at a forum on California's housing market sponsored by the Lusk Center and the online real estate service Zillow.
"My judgment is it's better to do something about tax expenditures," Green said. "One of the largest is the home mortgage interest deduction."
The issue has been a hot button in the presidential campaign, as Democrats challenge Republicans to disclose what tax "loopholes" they would close to pay for their proposed tax cuts.
Today's low interest rates make trimming the mortgage interest tax break easier, said Chris Thornberg of Beacon Economics, speaking on a panel with Green and other economists. The deduction is less valuable now that rates are at historic lows and housing prices are depressed.
And while the deduction is dear to homeowners on both coasts, where housing prices are high, it does not affect as many homeowners in the country's midsection, where prices are lower, Thornberg said.
Green added that many homeowners take a standard income tax deduction and don't benefit from the mortgage interest tax break, he said.
But Dowell Myers, public policy professor at USC, warned that taking away the deduction would be a signal to homeowners that "you're on your own," he said. "We need positive signals."
And "what happens to the economy, to consumer confidence" if home prices begin to decline after the tax break is removed or trimmed, asked Jason Gold, director at the Progressive Policy Institute in Washington, D.C.
The real estate industry is not going to go quietly on this issue, Gold warned.
"It's going to be pretty ugly," he said.
Also appearing at the forum was speaker Carol Galante, assistant secretary for housing for the Department of Housing and Urban Development, who said the National Mortgage Settlement with five big banks includes principal write-downs for struggling homeowners.
"That's good news for those homeowners and for the economy," said Galante, who is also Federal Housing Administration commissioner. "But we know it's not enough."
Contact Pete Carey at 408-920-5419.