Middle-income households and homeowners in expensive real-estate markets are still the biggest losers when it comes to Republican presidential nominee Mitt Romney's tax plan.
In Tuesday night's debate, Romney offered up the latest rendition on his tax plan, which includes slashing marginal tax rates by 20 percent across the board and offseting revenue with a limit on household write-offs for mortgage interest, charitable contributions and other other popular deductions.
"... In terms of bringing down deductions, one way of doing that would be to say everybody gets -- I’ll pick a number -- $25,000 of deductions and credits. And you can decide which ones to use," Romney said. This cap, he explained, could be anywhere from $17,000 up to $50,000 and would offset revenue lost from a lower tax rate. Higher-income tax payers could have an even lower cap, Romney has said.
But for consumers, a cap on mortgage deductions could hurt, especially in areas where housing costs are high, like California, New York and other metropolitan areas including Washington, D.C.
For example, a homeowner holding a $500,000 mortgage would have interest payments that exceed a $17,000 cap, and that does not include other itemized deductions such as charitable contributions, medical bills and doesn't consider high state or local income tax. That leaves homeowners in high-cost housing markets holding a higher tax bill, Politico and Bloomberg have both reported..
On Wednesday, Ezra Klein pointed out in the Washington post, "A deduction cap at the lower level could raise taxes for middle-class homeowners who use the mortgage interest deduction in areas where real-estate values are high. And a cap at the higher level wouldn’t be likely to raise enough revenue to pay for the rate cuts."
Romney's proposed deduction cap would affect at least 13.7 million taxpayers. According to Bloomberg, at least 3.7 million U.S. taxpayers last year reported deductions of $25,000 or more. About 10 million others wrote off $15,000 to $25,000.
Lobbyists for the housing industry are already ramping up efforts to keep mortgage tax breaks as generous as possible, the Hill reported last week.
Meanwhile, all middle-income earners will actually pay more under Romney's plan, according to the study of Romney's tax plan by the Tax Policy Center, a nonpartisan tax think tank in Washington, D.C.
Even using the most progressive approach to closing loopholes, the study showed that 95 percent of Americans will still pay more taxes or around $500 more per year on average, Mother Jones has reported.
"All of the promises couldn't be met simultaneously without resorting to tax increases on households with income below $200,000," the studys author William Gale of the Tax Policy Center said last week about Romney's tax plan.