Mortgage Interest Deduction

by Joel Barkman

I am sure that many have heard by now the proposals to scale back on the mortgage interest deduction and other housing tax provisions as part of the President's bipartisan Commission on Fiscal Responsibility and Reform. Draft documents that were released last month are raising serious concerns for the nation's home builders.

Specifically, the draft report by co-chairs Erskine Bowles and former Senator Alan Simpson lists options to completely eliminate the mortgage interest deduction or limit it to primary residences and mortgages under $500,000.

Other proposals would be adverse for the Low Income Housing Tax Credit (LIHTC), the deduction for real estate taxes for home owners, accelerated depreciation for rental housing, energy tax incentives and tax-exempt housing bonds. In addition, the proposals would result in significantly higher tax rates for capital gains and dividends.

However, none of these proposals has been formalized, and they are only listed as potential "options." Moreover, the overall plan, which includes many controversial proposals on Social Security, health care, defense spending and other issues, must win support of 14 of the 18 commissioners in order for Congress to consider the package. This is a high hurdle and requires the support of both Republican and Democratic members of the commission.

The commission itself has no actual power to implement its official recommendations and many of the proposals put forth by the chairmen are unlikely to garner bipartisan support.

Reactions to the plan from both sides of the political aisle have varied, ranging from outright opposition to cautious interest.

Nevertheless, this is the first concrete evidence put forth that the commission is taking a close look at the mortgage interest deduction and other housing incentives with an eye to scaling them back.

On the day that the draft report was released, the National Association of Home Builders (NAHB) immediately posted a reaction statement by Chairman Bob Jones, expressing the association's deep concerns about the mortgage interest deduction proposals.

Naturally, NAHB stands poised to vigorously defend the mortgage interest deduction and other critical housing and business provisions in the tax code as events unfold.

The NAHB Board of Directors has allocated resources to fight the assault on the mortgage interest deduction, and an integrated advocacy campaign has been developed to appropriately respond to the fiscal commission's final report released last week.

NAHB has launched a newly-designed consumer-oriented website, www.SaveMyMortgageInterestDeduction.com, to provide up-to-date information on the threat to the mortgage interest deduction.

"Americans overwhelmingly oppose any action by Congress to tamper with the mortgage interest deduction, but it could be eliminated or scaled back as Congress and the Administration are looking at tax increases in light of deficit concerns," said NAHB President Bob Jones. "The consequences would be devastating for home owners, the housing market and the nation's economy."

The website aims to separate the myths about the mortgage interest deduction from reality, and shows why this cornerstone of American housing policy is essential for millions of middle-class home owners and families that aspire to own their own home.

The site contains fact sheets, frequently asked questions, statistics, and other important information to allow homeowners and potential homeowners to stay informed as debate on the mortgage interest deduction moves forward. NAHB along with our friends from the National Association of Realtors, and the Northern Virginia Building Industry Association's Fauquier Chapter feel strongly that it is important to remain engaged and to make sure that our community's opinions are heard on this important.

All NAHB members who are concerned about this critical issue are encouraged to visit these pages and alert their family members and friends to visit them as well.

In response to plans unveiled last week by the National Commission on Fiscal Responsibility and Reform, the NAHB Chairman has issued the following statement:

"While we commend the hard work of the President's deficit commission to improve the nation's fiscal situation, this is simply the wrong approach to the problem. It would put a huge tax increase on millions of middle-class home owners by eliminating or devaluing the mortgage interest deduction. The consequences would be devastating for housing and the economy. This would further depress home prices, putting countless more home owners underwater and triggering a new wave of foreclosures. Eliminating or scaling back this vital housing deduction will shrink the local tax base of many communities, causing already cash-strapped state and local governments to further cut jobs and essential services. Given the extreme fragility of the housing market, with 21 percent of construction workers currently idled, tampering with the mortgage interest deduction is just not sound public policy."

By far is this going to be the last word and if you think your concerns are not being heard then perhaps it's time we join voices, just "Ask a Builder."

As always e-mail your questions or comments to joel@goldenrulebuilders.com or write to "Ask a Builder" at P.O. box 294, Catlett, VA 20119.

Barkman is past president of the Fauquier Chapter of The Northern Virginia Building Industry Association.

Read Joel's column weekly in the