Sen. Richard C. Shelby introduced a bill this week that would replace nearly all income tax deductions - including the mortgage interest writeoff - with a 17% flat tax.
The Alabama Republican said his proposal would encourage savings, spur economic growth by reducing marginal tax rates, eliminate the tax penalty for married couples, and tightly control spending.
"By taxing every dollar in the economy once and only once, all at the same rate, the Armey/Shelby flat tax will eliminate the double taxation of savings and promote jobs and higher wages," Sen. Shelby said.
Sen. Shelby also released the results of a survey by Political Opinion Strategies showing that new-home buyers are willing to relinquish the interest deduction in exchange for lower taxes.
Also, the lawmaker said the average family, with $30,000 a year of income, gets $432 a year in interest deductions under the current system. But under the flat tax, he said, the family would pay no tax at all. Sen. Shelby released no information on how the loss of the mortgage interest deduction would affect higher-income families.