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How to Bring Maryland's Budget to Heel, Part I

The State of Maryland should cap the amount of mortgage interest that can be deducted on the state return.
At the national level, Rep. John Dingell (D.-Mich.) has proposed phasing out IRS mortgage interest deductions for homes sized at 3,000 s.f. or more, omitting the deduction entirely for those that are 4,200 s.f. or more. This would discourage oversize dwellings that consume excess energy, as well as generate more tax revenue. Dingell's measure hasn't been enacted, but there's no reason why the State of Maryland can't consider something similar.

We would suggest something a little different and simpler that's easier to ascertain and verify: just have the state cap the amount of mortgage interest that can be deducted on the state return. The Maryland taxpayer would simply be asked to enter the lower of, say, $6000 or the actual amount of the deduction allowed on the federal return. This would increase taxable incomes accordingly, and yield more tax revenue for the state without being regressive. Plus, since outsize mortgage interest deductions would likely correlate with oversize homes, there could be an additional long-term environmental benefit.

The potential additional revenue from this (way overdue) deduction limitation might go a long way to obviating the "need" for slots.

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This story was published on October 31, 2007.