The interest deduction costs the Treasury more than $80 billion a year according to sources and President Obama's 2011 Budget just announced surprised many in Washington for going after what has been called one of the "Sacred Cows".

The proposed budget, caps the value of itemized deductions based on a taxpayer's income, in essence eliminating the mortgage interest deduction for single taxpayers making more than $200,000 a year. ($250,000 joint returns).
 
The move is designed to raise nearly $179 billion next year by increasing taxes on wealthier Americans.

• Current law allows interest on up to $1 million in total mortgages on first and second homes to be deducted. The MID is highly regressive tax policy, meaning that the wealthiest people with the biggest mortgages benefit the most.
• Last year over 70% of homeowners with a mortgage used the benefit.

The National Association of Realtors (NAR) was quick to offer a stern warning that such a move would be counter-productive to the improving housing market. "This proposed change in the Mortgage Interest Deduction will result in further erosion of home prices and home values", a spokesman said.

The Mortgage Bankers Association also wieghed in by saying, "Reducing the federal deficit is vital to the long-term health of the US economy and our industry.  However, we believe it can and should be done without negatively impacting the already-fragile housing market."

What are your thoughts on the issue?... Will this impact the recovery?

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