Dingell unveils mortgage deduction reductions

It’s true. Legislation is on its way to reduce the mortgage interest tax break for owners of larger houses.

The proposal, blogged about in a couple of earlier posts (here and here), is the brainchild — although some critics argue that not enough brain power went into the idea — of Rep. John D. Dingell.

Before the Michigan Democrat makes it official, he wants to hear from you and me. Well, actually, he probably just wants to hear from those of you who live in his district or at least in the Wolverine State. But I’ve already let him know my Texas-based thoughts.

You can offer your feedback, too. A draft of Dingell’s carbon tax proposal, of which the mortgage interest reduction is part, is posted on the Congressman’s Web site. Click here to review it; here to tell the lawmaker what you think of it.

Before you head over there, though, here’s a preview of the mortgage interest component.

Bigger house, smaller deduction: Dingell acknowledges that today’s new homes are more energy efficient, but argues that their sheer size, along with associated sprawl and longer commutes "lead to dramatically more energy use — or to put it more simply, a larger carbon footprint."

So he’s proposing a phaseout of the mortgage interest deduction on large homes, defined as those with more than 3,000 square feet. Owners of such residences would receive the following reduced tax breaks:

• 85 percent for homes 3,000-to-3,199 square feet
• 70 percent for homes 3,200-to-3,399 square feet
• 55 percent for homes 3,400-to-3,599 square feet
• 40 percent for homes 3,600-to-3,799 square feet
• 25 percent for homes 3,800-to-3,999 square feet
• 10 percent for homes 4,000-to-4,199 square feet

Owners of homes covering 4,200 or more square feet would not get any mortgage interest deduction.

Dingell provides dollar examples of how the reduction would work at this Web page.

The measure would allow exemptions for historical homes (those built prior to 1900) and farm houses. Homeowners also could get exemptions if they purchase carbon offsets to make their homes carbon neutral or own homes that are certified carbon neutral.

Dingell estimates that 10 percent of homeowners would be affected by the proposed mortgage interest deduction changes.

Hmmm. That 10 percent figure might change if the results of a recent poll are correct.

Opinion Research Corporation, on behalf of ERA Real Estate, questioned homeowners and found that almost one-quarter (24 percent) of survey respondents said they plan to buy a new home within the next five years in order to "upsize," although there was no elaboration on exact dimensions of such larger homes. But that’s 9 percent more than planned to look for a larger home last year.

Other carbon tax provisions: In addition to reducing and/or eliminating some home mortgage interest deductions, Dingell wants to impose:

• A 50-cent-per-gallon tax on gasoline and jet fuel. I’m sure his automaker-connected constituents in the Detroit area will be sending feedback on how they see this affecting their industry. The new tax would be on top of existing taxes and phased in over five years.
• A tax on carbon, at $50 a ton, that comes from burning coal, petroleum or natural gas.

In a press release announcing the planned legislation, Dingell said its provisions "will reduce energy costs to consumers and remove more than 10.8 billion tons of carbon dioxide from the atmosphere by 2030, an amount equal to five times the annual emissions of all of the cars and trucks on the road in America today."

Dingell also is exploring measures "to further reduce greenhouse gas emissions by developing an economy-wide cap-and-trade program" and is a co-sponsor of a bill that would mandate an increase in auto fuel economy standards by nearly 40 percent by 2022.

As for revenue from the new carbon tax, Dingell envisions it being used to pay for highway construction, mass transit, Social Security and health programs, expansion of the Earned Income Tax Credit program and to help the poor pay energy bills.

Just the beginning: In an interview with the Detroit Free Press, Dingell said he would likely would use constituent feedback to make significant changes to his plan before he formally introduces a bill.

Other adjustments also will come from Dingell’s Capitol Hill colleagues. By law, any tax measures will have to originate in the House Ways and Means Committee.

And the ultimate hurdle will be all of Capitol Hill, not to mention the White House, where most tax increases are quite unpopular, especially in an election year like 2008.