Two of the big "third rails" embraced by Messrs. Bowles and Simpson are the existing Federal income tax deductions for state/local taxes and mortgage-interest on a primary residence. My first thought is that "eliminating" anything which has been around for a long time is probably not a good idea... a lot of folks have made rather significant decisions based on the assumption that things aren't going to change (much). Since I live in a state with a large income tax, and since I work (and would like to move to) a region with much higher house prices, any talk of diddling with these deductions is troubling... I can barely afford to move with the current deductions, and eliminating them might force me to stay put. Unless, of course, house prices collapse as a result. Details follow.
I'm thinking of moving to a house with about $4000/year in local property taxes and an additional $200K mortgage (at 4% is about $8000/year). At the 28% bracket, we're talking about $3360 in additional taxes each year (assuming that the tax rates don't change). If I stay put, I'll have $3000/year in property taxes and no extra mortgage, or an extra $840 in taxes if the deduction for local taxes is eliminated. So, with the proposed changes, we're talking about a hit of $2500/year if I move.
The problem with house prices (as most realtors can tell you) is that they're based not on the "value" of the property, but on the size of the mortgage/tax payment that the buyer can afford. Eliminate the mortgage-interest deduction, and suddenly the property is out of reach. Unless (of course) the $200K mortgage suddenly becomes a $140K mortgage (at $5500/year). So, that's my choice if these deductions are eliminated: stay put (and endure big commutes) or wait for house prices to drop $60K.
Suddenly, doesn't this seem to be a rather big worry if you're in the housing business? All your buyers suddenly stay home until prices drop 10 or 20 percent? And isn't there a term for proposing something like this just as we're crawling out of one of our biggest housing downturns? Yes, we do have a term for ideas like this: f**king goddammed bone-achingly stupid. Are these two jackasses so brain damaged that they have no single spark of a clue as to what their "brilliant" ideas might do? Frankly, I think they are, and someone should kick their sorry asses around the Mall until maybe they begin to understand exactly what they're proposing.