Shrink the mortgage interest tax deduction?

This post comes from Marilyn Lewis of MSN Money.

The Wall Street Journal reports that the mortgage interest tax deduction may be an endangered species, at least in its present form. From the reaction, you'd think they were proposing slaying all first-born children.

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The bipartisan White House deficit commission (aka the National Commission on Fiscal Responsibility and Reform) hands over its report Dec. 1. The Journal says it's considering suggesting trims to the popular mortgage tax break.

"The White House has said these and other breaks cost the government about $1 trillion a year," the Journal says. That's including "child tax credits and the ability of employees to pay their portion of their health insurance tab with pretax dollars."

The panel apparently isn't suggesting killing these tax breaks, just shrinking them.

Also: This is not a done deal. Not even a proposal. It's a rumor. The panel still could take the deduction off the table. Post continues after video.

But the panel's job is to find (bipartisan) ways to reduce the federal budget deficit. We'd need to cut $240 billion (yearly) to balance the budget by 2015 (not including interest on debt), the Journal says. So, clearly, some things must go.

The panel, apparently, is trying to pick off the less-sensitive issues first.

Still, officials have found there aren't any easy ways to balance the budget, and they are expected to steer clear of more polarizing issues like Medicare, Medicaid, Social Security and a broad rewrite of the tax code in their short-term recommendations. The panel could still make long-term recommendations to change these issues, but they would be less concrete.

Sensitive? Yikes

But the mortgage interest deduction is sensitive enough. It costs $131 billion annually, says the Tax Policy Center. That dwarfs the cost of the Afghanistan war ($105 billion in the 2010 fiscal year) and is nearly three times what we spend ($48 billion) on all U.S. Department of Housing and Urban Development programs.

Even the rumor of carving up this sacred cow has Journal readers whipped into a fury.  A very political fury. Here's a teeny sample:

Reader "David Neal" wrote:

That will be another nail in the economic coffin we call America. I wrote off 7000 on interest last year. That will hurt real bad come April of next year. Obama is an idiot. I honestly am beginning to believe he was put here to destroy America. Everything he does or says is counterproductive to what we need.

"Mike Jones" replied:

And somebody who didn't take out a large mortgage was forced to pay for your share of taxes. Did you enjoy the wealth transfer?

Reader "jimmy larsen" added:

What a bunch of schmucks. We already have a National Commission on Fiscal Responsibility and Reform. It's called Congress.

Like many Journal readers, "KEN SANDERS" questioned the administration's priorities:

… Instead, how about cutting the gold-plated pensions and health benefits for the elite at all levels of government? God forbid we allow ignorant taxpayers to earn a return on their Social Security contributions, while the government elite does so every day on retirement benefits to which they contribute nothing ... The double standard and condescension of our government continues to be breathtaking ....

"Dan Foster" shot back:

Do you want them to cut military pensions and increase the premiums and out of pocket health care expenses for the military? The military is "the government" you know. LOTS of faceless, money devouring bureaucrats are in the military. Look at how expensive those wars in Iraq and Afghanistan were! Some of the people in the military actually have the gall to expect disability payments and free health care from the taxpayers for their war injuries too ... FOR LIFE!!!

This is one popular tax deduction.

Last month, 79% of the "likely voters" polled by the National Association of Home Builders agreed that "the federal government should provide tax incentives to promote homeownership." Support for the subsidy came from supporters of both political parties and independents.

Does shrinking this tax break seem like a good idea to you? Weigh in below, please.

What's in it for you?

But -- and maybe we're asking for a rain of napalm on our heads -- does this sacred cow actually do you any good?

Look at who loses if the mortgage tax break is shrunk. Are you among the 65% of Americans who do not itemize deductions (like mortgage interest, state and local taxes, and gifts to charities) on their IRS 1040 forms? If so, the mortgage interest deduction adds nothing -- zip, zero -- to your bottom line.

By last count (in 2004) just 35% of Americans itemized. The number is growing, though.

Put simply: If you use the standard deduction ($5,700 if you're single or married filing separately, $11,400 on a joint return, or $8,350 if you qualify as head of household), you might want to save your indignation for something that affects you.

Who exactly does it help? Middle- and upper-income households, according to The Dallas Morning News. 

Here's who gets least and most from it:

• Least: If you make less than $40,000 a year, you're likely, on average, to gain $91 from the deduction, says Jim Van Meerten at MSN Money. (He is, for the record, anti-deduction reduction).
• Most: If you make more than $250,000, your MID benefit is an average $5,459.

Most people who benefit from the deduction would own a home even without it, says the Tax Policy Center. So much for the idea that the break encourages homeownership.

"If the government wishes to promote homeownership, a refundable tax credit available to all taxpayers, not just itemizers or those with positive tax liability, would be more effective," the Tax Policy Center adds.

• Bing:Difference between a tax credit and tax deduction

There you have it: Everybody loves the mortgage interest deduction. But the chances we actually get anything from it? Slim.

What do you think? Why not give everybody a housing tax credit? Is it fair to single out homeowners for benefits that all taxpayers subsidize? Does shrinking the deduction make you see red, even if you don't get anything from it?

More from MSN Money:

• The myth of the mortgage interest deduction
• 10 big deductions too many people miss
• Should you do your own taxes?
• The truth about mortgages