Republicans' Bold Tax Moves May Pay Off Later

The tax plan released by the House last week limits deductions for a variety of expenses, including tuition debt, mortgage interest, alimony, medical expenses, state and local taxes, gambling losses, tax-preparation expenses, and moving expenses. The details are likely to change in the Senate, but the important point for long run is that the deductions are being challenged. Many of the changes -- in particular, mortgage interest, medical expenses, and state and local taxes -- are taking on powerful lobbies and constituencies. Several months ago I would not have thought the Republicans would be so bold.

If the bill succeeds in limiting these deductions, a logic is set in motion for future tax reforms. Let’s say the Republicans eliminate tax deductions for new mortgages above $500,000. That would become a sign that the homeowner and real-estate lobbies are not as strong as we might have thought. The next time tax reform comes around, legislators will consider lowering the value of the deduction further yet. After all, the anti-deduction forces won before and, in the new battle, those who expect to have future mortgages above $500,000 don’t have a stake anymore.