Interesting scoop from the Wall Street Journal:
Sacrosanct tax breaks, including deductions on mortgage interest, remain on the table just weeks before the deficit commission issues recommendations on policies to pare back with the aim of balancing the budget by 2015.
The tax benefits are hugely popular with the public but they have drawn the panel's focus, in part because the White House has said these and other breaks cost the government about $1 trillion a year.
Any serious policy wonk would tell you that reducing tax expenditures -- which means tax deductions and credits -- is a no-brainer way to reduce the deficit. It's a way of increasing revenue without increasing marginal tax rates. It's also a relatively progressive way to increase revenue, since a tax deduction is worth more to earners in higher tax brackets. The mortgage interest deduction is a subsidy for homeownership -- which is itself problematic -- and which in turn delivers far more to high-income homeowners than to low-incoem homeowners. Capping the deduction at a flat 15%, say, would raise a ton of revenue in a relatively progressive way without distorting work incentives by raising rates.
If Republicans really want to reduce the size of government, this is the kind of direction they'll have to go in. They simply aren't going to be able to slash popular government programs because the Democrats will stop them and have public opinion on their side. They could make a David Cameron-type bargain with moderate Democrats, paring back programs and finding revenue increases such that the affluent bear a disproportionate share of the burden.
I'd be surprised if they did it. Both the ideological apparatus and the interest-group coalition associated with the Republican Party is structured to prevent them from pursuing this kind of policy goal. The GOP is set up to protect the financial interests of the rich, not to reduce the size of government. (There's no small number of liberals opposed to any spending cuts, too, but the countervailing force is the Democratic party is far stronger, including among other things most of President Obama's economic team.) But there are just enough Republican elites genuinely freaked out about deficits to make the possibility of a deal, however small, worth keeping an eye on.