"...What did the Obama budget propose specifically on mortgage interest and property tax deductions? Starting in 2011, home-owning households with adjusted gross incomes of $250,000 and above could take write-offs only at a 28% marginal tax bracket rate. To illustrate, say you're in the 35% bracket and have $20,000 of mortgage interest, property tax and charitable deductions, all of which are targeted in the Obama proposal. This year you'd be able to write off 35% of the $20,000 -- $7,000. If you were capped at a 28% rate, you could write off only $5,600. Your tax bill would go up by $1,400.... In a report in October, the bipartisan congressional Joint Committee on Taxation estimated that in 2009, the mortgage interest deduction alone would cost the government $89.4 billion in uncollected taxes. Between 2008 and 2012, according to the committee, the interest write-off in its current form will cost the Treasury $443.6 billion. Property tax deductions will cost an additional $112 billion over the same period.... Home building, realty brokerage and banking industry leaders passionately oppose the deduction cutbacks because they believe they could lower property values and are ill-timed amid the market's vulnerability..."

Obama's plan to limit write-offs provokes push-back | The Los Angeles Times | By Kenneth R. Harney | March 8, 2009

Lawrence Yun, chief economist for the National Association of Realtors warned that any rollback could undermine an already decimated housing market. "...But many economists have long argued that the deduction... mainly subsidizes the cost of buying a home for the richest Americans, who would buy homes even without it... Most lower- and middle-income homeowners don't qualify for the deductions because they don't itemize deductions on their tax returns... [E]conomists have also faulted the mortgage-interest deduction for inflating prices in supply-constrained markets..."

The Wall Street Journal Online | Mortgage Deduction Looks Less Sacred | By NICK TIMIRAOS