You knew it was coming. It didn’t take them long. The National Association of Realtors is ready to take on Pres. Obama’s taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. proposal that would limit the mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act (TCJA) reduced the amount of principal and limited the types of loans that qualify for the deduction. , just as it helped defeat Pres. Bush’s tax panel’s recommendation to limit MID.
If Obama wants to stick to his campaign promise to not let special interests run Washington, he should reject the lobbying blist that NAR is promising over the next 24 hours. Here’s what is on NAR’s website right now:
President Obama released his budget proposal this morning. A small section of the sweeping budget plan has the potential to become a major impediment to a recovery in real estate markets across the nation. NAR is 100% opposed to the provision that modifies the Mortgage Interest Deduction and is prepared to use its formidable array of resources against its enactment.
As currently drafted, the plan changes the Mortgage Interest Deduction by reducing the amount of mortgage deductibility on families earning over $250,000. This proposed change in the Mortgage Interest Deduction will result in further erosion of home prices and home values. If this proposal is enacted it will set of a new round of price depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. , will cause greater distress on the balance sheets of banks as the collateral value of mortgage backed securities declines. A second credit crisis could emerge before the first one is resolved.
As you read this NAR is launching a multiphase plan of action to eliminate this provision from the budget plan. In the next 24 hours, NAR will be expressing our concerns directly to President Obama, to all members of the United States House of Representatives and the Senate, placing advertisements in the publications read by Washington, DC decision makers. Additionally, NAR will be forming a coalition with other groups affected by this proposal.
So the Realtors are making an argument that due to the current housing situation, there should be no limits to MID. Yet in October 2005 (near the peak of the housing market), the Realtors were also arguing against limits to MID proposed by the tax reform panel. No time is a time to reform MID according to NAR, so should we really take seriously what this organization is saying now?
And by the way, should we really take anything seriously that this discredited organization has to say about the state of the housing market in general? If you believe so, I have a book that I would like to sell you that could make you rich.
Obama appears set to raise taxes on high-income people, and while in isolation, no tax hike is always preferred to a tax hike, eliminating tax preferences for high-income people like MID is better than the alternative, which is higher marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. s for everyone.
Limiting the mortgage interest deduction for high-income earners will basically eliminate a tax provision that encourages bigger and more expensive homes for high-income people as opposed to encouraging home ownership in general (i.e. the binary question of yes or no on a house). So would you expect anything else from an organization whose existence depends upon 6 percent of the price of a house than to be opposed to a change in policy that could reduce prices that are to a large extent artificially inflated by the policy in the first place?
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