Now, I do understand that drastically reducing the cap on the mortgage interest rate now, in the midst of a housing crash, would be kicking the markets when they are down. Yet this crisis provides us with an opportunity to act that will be lost if we wait until housing prices rise again.

So here is my utterly quixotic proposal. Enact legislation now that will gradually decrease the cap on the mortgage principal for which homeowners can deduct interest payments by $100,000 a year over the next seven years until it hits $300,000.

Sure, fine by me.  The home mortgage deducation is a perfect example of a policy that might have made social sense at one time, but outlived its usefulness years ago and now continues a zombie-like existence as one of the third rails of American tax policy.  But why bother decreasing the cap?  Why not just decrease the amount of interest you can deduct from 100% to 95% to 90% and eventually to zero over 20 years, starting, say, in 2011?  And replace it each year with a proportionate increase in the standard deduction.  (Or maybe something else.  Ideas welcome.)

Or replace it with nothing at all, in the name of fiscal responsibility.  Not many votes in Congress for that, though, are there?

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Kevin Drum

Political Blogger

Kevin Drum is a political blogger for Mother Jones. For more of his stories, click here. RSS | Twitter