The Official Online Newspaper of NAHB
By Larry Kush
If “pro” is the opposite of “con,” what is the opposite of “progress”?
If you answered “Congress,” the late Paul Harvey, who asked the question, would have agreed with you, and he might have called your attention to a stifling proposal that’s been making the rounds in Washington and would seriously damage one of our most cherished institutions — homeownership.
About one year ago, the Obama Administration proposed a cutback in the mortgage interest deduction (MID), a fractional cap on deductions taken by households with larger incomes.
More recently, late last year Obama’s deficit commission proposed serious changes in tax policy that would harm housing on a number of fronts.
Innocuous as it may seem to some, there is a real possibility that these actions are just the first step in a longer-range campaign to eliminate the mortgage interest deduction for home owners in general.
When government kills a deduction that’s been around as long as the MID, it is essentially creating a new tax — something American voters are finding more and more unacceptable.
This cutback would require America’s home owners to help pay for an ever-expanding government. Additionally, it would put the dream of homeownership further out of reach for America’s new families.
There are many good reasons to keep the MID. And the reasons to kill the deduction just don’t hold water.
First of all, a home of your own has always been the foundation of the American Dream. The social benefits are immense.
President Franklin Delano Roosevelt said that a nation of home owners is unconquerable. President Clinton called homeownership an essential part of the American Dream, and President George W. Bush said it has the power to transform people.
As intangible as some may paint it, pride of ownership is the number-one reason why people strive to own their own home.
From a financial standpoint, there is absolutely no question that buying a home has a number of advantages:
- Deduction of mortgage interest
- Deduction of real estate taxes
- Capital gain exclusion
And regardless of market ups and downs, in most cases the value of the home is the typical family’s major asset. Paying off a mortgage for many has become a form of enforced savings.
Economists, market experts and analysts agree that elimination of the MID would result in a further drop in home values. There would be even more foreclosures. Home sales would suffer. And even greater unemployment would result.
Bob Jones, former chairman of NAHB, had this to say about the proposed legislation:
“The collateral economic damage of what happens when something comes along to pull the rug out from under housing values is all around us, so who in their right mind would advocate a plan to bring down housing prices by 10% or more?
"The MID was not responsible for the housing bubble; countries without an MID have also experienced dramatic swings in housing prices in recent years. The benefits of the MID are also expansive in scope geographically.”
Public support for retaining the interest deduction is overwhelming.
According to a nationwide survey of likely voters this past September, nearly 80% support retaining federal tax incentives to promote homeownership, which has been in the tax code since the introduction of federal income taxes in 1913, nearly a century ago.
Surprising to some but not to me, an even higher percentage — 82% — of renters favor providing tax incentives to promote homeownership. Most renters aspire to someday become owners.
Which brings us to “How to Lose an Election, 101.”
Voters stated in the poll that they would be less likely to vote for a candidate for Congress who supported either eliminating or reducing the home mortgage interest deduction. The message is clear.
Yet, our bloated federal government still lumbers and wheezes down Pennsylvania Avenue with proposals for extravagant legislation fluttering from its bureaucratic folds.
Eliminating this tax break for home owners is tantamount to forcing new taxation on an economy where most thinking people believe the best way out of a hole is not to dig it any deeper with new taxes.
Larry Kush is national area chairman of NAHB for a six-state area including Arizona, Colorado, Nevada, New Mexico, Utah and Wyoming. He is the former chairman of the Home Builders Association of Central Arizona and currently serves as an honorary life director. A home builder for 30 years, he has been selected five times as the Phoenix Home Builder of the Year. He can be reached at firstname.lastname@example.org.