A recent survey found that around three-quarters of home owners and two-thirds of renters said the mortgage interest deduction (MID) is important to them. Of course, the survey was conducted by the pro-homeowner National Association of Realtors.Equally unsurprising, that trade group, along with the Mortgage Bankers Association and the National Association of Home Builders have already issued battle cries against the proposal to scale back the long-popular tax break for homeowners. That would be the proposal by the National Commission on Fiscal Responsibility and Reform, a bipartisan panel appointed by President Obama, to convert the deduction into a 12% non-refundable tax credit, and eliminate the MID entirely for mortgages over $500,000, for mortgages on second homes and for home equity loans.
The MID is just one of many tax breaks the Commission's co-chairs suggest that Congress should tweak. In its 59-page proposal, titled "The Moment of Truth," the chairmen, Clinton Administration former-Chief of Staff Erskine Bowles and former Republican Sen. Alan Simpson , propose to eliminate $4.4 billion of deficit growth by 2020 by slashing discretionary government spending, from farm subsidies to defense spending; reducing the MID and other tax breaks; creating a new gas tax; and raising the Social Security retirement age, among other things.
On Friday, the full, 18-member panel will vote on whether the entire Commission should endorse the proposal, sending it to a congressional vote. A number of panel members have already gone public in favor of the proposal, while others expressed that they agreed with some, but not all, of the line-item tax and spending changes contained therein. All signs point to both the White House and Congress culling some of the innovative and controversial deficit-reduction ideas in the proposal to use in their own budgets for next year, the Wall Street Journal reported.
This certainly was not the first time the MID has been put in jeopardy. President Bush's advisory panel recommended that the deduction be reformed in 2005, but legislators deemed it virtual political suicide, due to its popularity with homeowners.
This go-round, dire economic conditions and the near-collapse of more than one European nation have been cited as factors weighing in favor of Congress taking all the unpopular tax hikes -- including the proposed revisions to the MID -- very seriously.
"Look at what's happening to other countries," panel co-chair Simpson said. "We're not unique. If we don't address this, we face the most predictable economic crisis in history .... We can either wake up and smell the coffee or we can wait to watch it happen."
Realistically, chances are good that some of the proposed tax changes will end up as law in the near future. Chances are not-so-good, though, that the changes to the MID will be among them. These tax credits are highly popular with homeowners (read: voters) and, as such, are a tough sell to politicians. Lawmakers are likely to push back against changing the MID right now, given the current state of the real estate market and their desire to be viewed by voters as working to protect, not diminish, the value and desirability of homes and home ownership.
Also, powerful real estate trade groups and their lobbies are already gearing up for a potentially epic battle to protect the deduction -- a battle they will not likely lose.
NAR President Ron Phipps declares emphatically, "Recent progress has been made in bringing stability to the housing market and any changes to the MID now or in the future could critically erode home prices and the value of homes by as much as 15%, according to our research. This would negatively impact home ownership for millions of Americans, including those who own their homes outright and have no mortgage .... NAR will remain vigilant in opposing any plan that modifies or excludes the deductibility of mortgage interest."
Lobbyists "would probably prevail, if I had to bet," economist Gerald Prante of the Tax Foundation, a non-partisan group which is in favor of MID reform, told Fox Business News. "Homeowners will complain about it, and the lobbyists will appeal to the fear of homeowners. You're going to get the typical rhetoric from the opponents of this. It's going to be 'the sky is falling because this could go away'."
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