As fiscal cliff talks home in on raising revenue through the tax code, the housing industry is sounding the alarm to the consumer market that the mortgage interest deduction may be in the cross hairs.
The deduction has long been a politically sacred piece of the tax code, but a provision worth nearly $100 billion per year may be hard to ignore as lawmakers show growing interest in capping deductions as a way to reduce the deficit.
“We’re very concerned about that,” said Jerry Howard, CEO of the National Association of Home Builders. “I’m paid not to be confident.”
Howard said homebuilders are warning the public through various channels that eliminating or even modestly changing the mortgage interest deduction, the foundation of the 30-year mortgage that is a pillar of home ownership in the country, would do serious damage to the housing sector and the broader economy.
“I think when lawmakers become educated as to the practical impact of tinkering with the mortgage interest deduction ... the amount of money you would get in comparison to the negative impact this would have on the economy, they start to see that this isn’t really a good road to go down,” Howard said.
At this early point in the negotiations over impending automatic tax increases and spending reductions, Republicans are arguing to raise revenue by curbing deductions and rewriting the tax code. But that has gotten a cool response from some top Democrats who are pressing for higher rates.“If it’s just eliminating tax loopholes that affect middle-class families, and they don’t have a mortgage deduction or a charitable deduction or we raise their co-pay on Medicare, all of that revenue falling on the middle class isn’t a fair and balanced way to get to a deal,” said Sen. Patty Murray, D-Wash.
While campaigning in September, President Barack Obama blasted GOP nominee Mitt Romney’s proposal to offset the cost of new tax cuts by capping deductions, including those for homeowners. “I refuse to ask middle-class families to give up your deduction for owning a home or raising kids just so we pay for another millionaire’s tax cut,” Obama said.
Still, the president has not closed the door on modifying the mortgage interest deduction. In his fiscal 2013 budget proposal, Obama called for limiting the deduction for families making at least $250,000 per year. Obama’s budget would cap itemized tax deductions at 28 percent for upper-income earners, down from a high of 35 percent.
Any attempt to change the deduction will face obstacles in Congress, however. A resolution sponsored by Rep. Gary G. Miller, R-Calif., that calls for no changes to the deduction has a bipartisan tally of 199 co-sponsors.
And the powerful National Association of Realtors says it is watching for any possible action on the mortgage deduction.
“We will remain vigilant in opposing any future plan that modifies or excludes the deductibility of mortgage interest,” NAR President Gary Thomas said in a written statement.
Vice President Joe Biden waits to conduct a mock swearing-in ceremony with Sen. Brian Schatz, D-Hawaii, in the Capitol's Old Senate Chamber, December 2, 2014. Schatz was sworn in to serve the remainder of his term since he was appointed to the seat after Sen. Daniel Inouye, D-Hawaii, passed away.