Unlike the House Bill, the Senate version of tax reform currently leaves the mortgage interest deduction intact. Some might argue this isn’t a big deal given the rest of the bill. The white whale of tax reform has been to end itemization. The Senate bill, by eliminating SALT deductions, eliminating the personal exemption and nearly doubling the standard deduction, will leave very few people who find it in their interest to itemize at all.
Nonetheless, I think giving up on cutting the Mortgage Interest Deduction is short sighted. First, the Mortgage Interest Deduction has long been considered the exemplar of powerful special interests in the tax code. Cutting it explicitly sets the norm that nothing is sacred.
This has a strong dynamic effect. Special interests will be far less inclined to fight the next time around, after seeing such a powerful lobby get knocked down. Not simply because the return from lobbying is lower, but because the national organizations that do the lobbying want to hide this fact. They very much want to be seen as an important and powerful agent for their members. Humiliating public defeat works against this. As such they shy away from fights they believe they will lose.
Second, there is strong reason to believe that tax reform has more going for it at this juncture, than in a long time. In the post Josh McCabe writes:
Despite the considerable lobbying power of NAR and NAHB, the story of the 1987 limits suggest that there may be hope for policymakers pushing to limit HMID today. That’s because many of the same conditions exist. Republicans have been criticized for crafting tax reform in secret and rushing to get it done by Christmas but they see this as “must-pass” legislation in the wake of their failed health-care reforms. They are also struggling to find additional revenue to fund more important priorities, including an enhanced child tax credit.
Secrecy, speed and pressure to pass something worked to the advantage of liberal tax reformers in 1987. The same could very well work to the advantage of conservative reformers today.