Tax Plan Housing Provisions Called ‘Dead on Arrival’
Reform proposals from a presidential advisory group to wipe out the tax deduction for mortgage interest and state and local taxes and start over with a 15% housing credit have received a frosty reception from members of the tax-writing House Ways and Means Committee who have been getting an earful from their constituents, according to Rep. Jerry Weller (R-Ill.) in an NAHB teleconference with Senior Officers from the association on Nov. 10.
Weller's comments were reinforced by a national survey that was released during the phone conference with the news media. Commissioned by NAHB, the survey found wide-spread public disapproval of efforts to tamper with the mortgage interest deduction and other important housing tax incentives promoting homeownership.
Weller reported that if the housing reform provisions should be presented by the Administration to his committee, they would be “dead on arrival.” However, he emphasized that neither the White House nor the Treasury had conveyed to House members any response to the panel’s proposal, which was met with a barrage of controversy when it was unveiled on Nov. 1.
“I’ve certainly heard a real sense of alarm from my constituents,” Weller added. “Particularly, they are very concerned about a proposal to eliminate or greatly reduce the mortgage interest deduction and state and local taxes, because they realize they’re going to be paying higher taxes.”
Weller said that a typical middle-class home owner in his state would see a tax hike of $2,000-$2,500 if the reform proposal went into effect.
Home owners in his state would also face the danger of seeing a reduction in the value of their property, and that would have negative implications for the health of the nation’s economy, the congressman indicated. “Rising home values have been part of the psychological motivation for the economy to grow,” Weller said. “As a member of Congress, my number-one priority is moving the economy forward, creating jobs and giving more Americans the chance to improve their standard of living.”
A Letter to President Bush
As Weller spoke, an eighth Republican House Ways and Means member — Rep. Kevin Brady (R-Texas) — had just signed a letter to President Bush urging him to preserve the housing tax incentives in the current tax code, “which underpin homeownership and the social and economic benefits it generates.”
The letter concludes: “We urge you to consider your original directive to the Advisory Panel, which was to make changes to the tax code that simplified the code, were fair, bolstered economic growth and supported charitable giving and homeownership.”
In addition to Weller, previous signers of the correspondence to the President were Reps. Mark Foley (R-Fla.), Nancy Johnson (R-Conn.), Eric Cantor (R-Va.), Jim Ramstad (R-Minn.), Clay Shaw (R-Fla.) and Ron Lewis (R-Ky.).
High-Cost Markets Hit the Hardest
NAHB President David Wilson said that the panel’s tax plan would be especially punishing to home owners who live in California, Florida and other states where there is a heavy concentration of high-priced homes. “They would bear the brunt of the proposed limitations on mortgage interest tax benefits,” he said.
The plan’s elimination of the deductibility of interest on second and vacation homes would also cripple the economies of resort areas, Wilson said, including his home town of Ketchum, Idaho.
He also pointed out that it would do away with the Low Income Housing Tax Credit, virtually the only tool available to build affordable rental housing. "The program accounts for more than 130,000 rental housing units annually," he said, "and we can't afford to lose it."
On the Short End of the Stick
NAHB President-elect David Pressly said that after carefully analyzing the impact of the housing reform plan to determine who would be the likely winners and losers, the association “reached an alarming conclusion. Simply put, the nation’s middle-class home owners would come out on the short end of the stick."
Hardest hit, he said, would be the 18 million households who bought their homes during the past three years when prices were going up by 10%, 15% or 20% annually. “Most of these households have significant mortgage interest payments in the early years of their relatively large mortgages,” Pressly said. “Virtually all of them were counting on the mortgage interest deduction to reduce their housing costs to more affordable levels.”
(For detailed scenarios of the tax hikes faced by home owners in Chicago; San Jose, Calif. and Binghamton in upstate New York, click here.)
Like members of Congress, Pressly said that NAHB has been hearing from concerned members of the public on the tax proposals, and one home owner even indicated that she would be forced to sell her home if the program is approved. (For that e-mail and other reactions, click here.)
Survey Finds Thin Support for Reform Plan
A nationwide survey of 800 likely voters conducted for NAHB on Nov. 6-8 by Public Opinion Strategies found that 81% of the respondents believe it is reasonable for the federal government to provide tax incentives to promote homeownership and 76% oppose replacing them with incentives to invest in the stock market, “and that is exactly what the advisory tax panel’s plan would do,” according to Jerry Howard, NAHB’s executive vice president and CEO.
Howard also reported that the survey found that tax reform was not a top priority among the list of voter concerns. “Ranking it against the war in Iraq, national security and terrorism, and protecting Social Security and Medicare, it fell way far down on their list of priorities,” he said.
When asked to rate the importance of preserving tax deductions in the current system, 73% of those surveyed indicated top support for the mortgage deduction and medical expenses. Support for these two items was followed closely by the deduction for state and local taxes, including property taxes, which was cited by 69%.
Among those renting their current homes, 62% indicated support for maintaining the mortgage interest deduction, second on their list of most important deductions behind those for medical expenses.
According to the survey results, “one reason voters appear skeptical of whether tax reform will prove to be beneficial is that few believe they will end up paying less in taxes,” Howard said. Only 14% believe their tax bill will be lower if tax reform is enacted. Conversely, 30% expect to pay more under a new tax code.
For more information, e-mail Michael Strauss, or call him at 800-368-5242 x8252.