The Mortgage Interest Deduction Debate Fires Up
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In Builder Pulse's Sept. 27 issue, we called attention to a UPI article by Steve Cook that tapped into a Zillow survey whose findings point to broad disfavor with the mortgage interest deduction among Zillow survey respondents.
The
UPI article's headline was "Housing Economists Hate the MID," and the
article quoted exactly one economist. Here's how we played the item in
Pulse:
Here's a response to the piece from Larry S. Kush, National Area Chairman for the National Association of Home Builders:
How to lose an election – 101
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 – home ownership.
About one and one half years 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 his 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,
they essentially are creating a new tax – something American voters are
finding more and
more unacceptable. This cutback would require America’s homeowners 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
homeowners is unconquerable. President Clinton called homeownership an
essential part of the American Dream, and PresidentGeorge W. Bush said
it has the power to transform people.
Documented research has shown that there is a higher educational
performance and better behavior of children among homeowners, that crime
rates are lower, where is less dependency on welfare, greater household
participation on in civic affairs and better household health. 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 the fact
that, regardless of market ups and downs, in most cases the value of the
typical family home is that 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, a former chairman of the National Association of Home
Builders, 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 nationwidesurvey of likely voters this past September,
nearly 80 percent 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 percent) 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 obese federal government still lumbers and wheezes down
Pennsylvania Avenue with pending bills of extravagant legislation
fluttering from the folds of it’s bureaucratic fat. Eliminating this
tax break for home owner’s 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 the National Association of Home
Builders (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 andcurrently serves as an
honorary life director. A home builder for 30 years, he has been
selected five times the Phoenix Home Builder of the year. Larry can be
reached at lsk@larrykush.com