WASHINGTON -- You might assume that during August, with the Senate and House on their summer break, nothing much happens on Capitol Hill.

You know the old saw: Your money is safe when Congress is out of town.

But that's not quite the way it works. Committee staffs, economists, tax lawyers and policy shapers who toil below the headlines never really leave town. For example, earlier this month the nonpartisan Congressional Budget Office delivered its latest revenue-raising options for Senate and House consideration as they write this fall's tax and budget legislation.

Tucked away in the report are several incendiary plans that could -- if adopted -- cost homeowners billions of dollars. Though not formal legislative proposals, the CBO's options represent a handy fiscal menu for legislators to pick and choose from to reduce the deficit -- now at unprecedented levels -- or to pay for new programs they might want to advance.

Tops on the CBO's hit list for housing: Slash deductions for homeowner mortgage interest from the present $1.1 million limit to $500,000, phased in with $100,000 annual reductions starting in 2013 and extending to 2019. Under current law, taxpayers can write off mortgage interest on their principal home debt up to $1 million, and on home equity debt up to $100,000.

Under the CBO's option, that maximum mortgage debt amount would shrink yearly until it hit $500,000. Over a 10-year period, this change alone would boost federal tax collections by an estimated $41 billion.

The CBO offered up a second option if Congress wants to raise a lot more money: Replace the current mortgage interest deduction with a flat 15 percent tax credit for everybody with mortgage amounts below the declining limits in the first option. Rather than taking write-offs that are tied to your personal income tax bracket, every homeowner would get a credit worth 15 percent of mortgage interest paid.

Who'd benefit? Primarily lower- and moderate-income taxpayers who don't itemize on their returns. Who'd pay more? People with big mortgages and higher-than-average incomes, who are far more likely to itemize under current rules.

Credits reduce taxes dollar for dollar at the bottom line of returns. Deductions, by contrast, are tied to taxpayers' marginal brackets. The higher the bracket, the bigger the percentage of the write-off.

The CBO notes that this idea is not something it just dreamed up. Four years ago, a tax reform advisory commission appointed by President George W. Bush came up with a similar recommendation to transform the mortgage deductions into a credit. The attractiveness of the credit concept is both fiscal -- it raises a boatload of new money for the government -- and social. Continued...