President Barack Obama and Speaker of the House John Boehner met one-on-one at the White House on Sunday to discuss a fiscal cliff resolution. Though the divide between the GOP and the President is still wide, there is increasing hope for compromise.
As the fiscal cliff approaches, it has become clearer to House Republicans that tax hikes are unavoidable – if the lame duck Congress refuses to raise taxes on only the wealthy, instead opting to let the Bush tax cuts expire across the board, President Obama may have the support needed to pass his new tax plan in 2013. If the President’s tax plan were to pass in the new Congress, it could prove a politically damaging loss for the Republican Party.
So, how will the parties compromise? One item on the table is a mortgage interest deduction, a long-treasured incentive for homeowners that critics say benefits the wealthy much more than the middle class. Realtors, homeowners, and potential homebuyers are worried that the deduction could be detrimental to the housing market, specifically in the urban centers of Los Angeles, San Francisco, and New York, where home prices are higher.
The deduction would limit the benefits of owning a home, potentially lowering the amount that first time homebuyers could spend. Those who support the deduction cite high rates of homeownership in countries with lower prices on the housing market. They argue that the current deductions primarily incentivize homeownership for the wealthy, and that modifications could be a beneficial compromise during fiscal cliff negotiation.
How should the two parties handle the fiscal cliff as the end of the year approaches? Is there room for compromise on this issue? How much can deductions and spending cuts balance out tax increases? Is there hope for resolution before the year ends?
Doyle McManus, Washington columnist for the Los Angeles Times
Chris Thornberg, Principal, Beacon Economics
Lawrence Yun, Chief Economist for the National Association of Realtors