The U.S. public and policy makers would oppose many of the ideas put forward by the presidential deficit-reduction panel, including ending “politically sacrosanct” home mortgage interest deductions, said Gregory Mankiw, a former chief economic adviser to President George W. Bush.
Policy makers are debating how to rein in a deficit the Congressional Budget Office said will total $1.34 trillion this year. Erskine Bowles and Alan Simpson, the co-chairmen of President Barack Obama’s deficit commission, released on Nov. 10 a preliminary plan to cut $3.8 trillion from the budget by limiting spending and overhauling the tax code.
“It’s a long political road here, but I think they have some very good ideas,” Mankiw said of the commission’s proposals today in a “Bloomberg Surveillance” radio interview with Tom Keene. “The question is whether this is politically saleable. Right now, the mood in Congress is not toward any sort of bipartisan agreement, and it’s going to require that to do anything as major as a big deficit-reduction package like the Bowles-Simpson plan.”
Outside Washington, many people in the U.S. will be “viscerally opposed” to plans to trim the budget, according to Mankiw, now an economics professor at Harvard University in Cambridge, Massachusetts.
“The American public is going to be opposed to a lot of the ideas, whether it’s getting rid of the mortgage interest deductions or raising the retirement age for Social Security,” Mankiw said. “All of these things are going to involve painful decisions for many middle American families.”
Mortgage deductions, inefficient because they reduce corporate capital and decrease productivity and wages, will be very difficult to terminate, according to Mankiw, who became chairman of Bush’s Council of Economic Advisers as Congress lowered capital-gains rates to 15 percent in 2003.
“The home mortgage deduction is politically sacrosanct, but if you really think about the merits of it, economists have long suggested that it’s not good for the economy,” Mankiw said. “Even if you think about it from the standpoint of fairness, when you subsidize homeowners, that’s pretty much the same as penalizing renters, and there’s nothing ignoble about renting.”
Mankiw said he would be willing to trade in many existing tax deductions for a simpler tax code with lower rates.