The tax code overhaul journey has begun.
The President and Republican leaders put a framework on the table last week whose intent is to give economic growth a big boost by reducing taxes for many businesses and individuals.
National Association of Home Builders leadership offered a constructive take on goals mapped out as a broad set of principles, looking at the positives as significant, and regarding potential negatives in the outline as matters its team would take up on an issue by issue basis.
NAHB Chairman Granger MacDonald voiced the association's view of the tax reform initiative's key objectives here:
“By lowering the pass-through rate, the plan will reduce the tax bill of thousands of small businesses and help to spur job and economic growth. More importantly, the blueprint maintains the Low Income Housing Tax Credit, the most indispensable tool to help produce affordable rental housing. The plan also retains a business interest deduction for small businesses, which would ensure that our future tax code is truly pro-growth.
“On an issue of such significance, we recognize difficult trade-offs must be made. Although the mortgage interest deduction remains untouched, its effectiveness could be diminished as more families elect to take a higher standard deduction. As the process advances, NAHB looks forward to working with policymakers to mitigate any detrimental effects that this development could have on the housing market. In addition, we will also seek to ensure that tax relief efforts put more money into the pockets of hard-working families and that affordable homeownership and rental housing opportunities remain an accessible goal.”
One of the operable terms in the quote above is "as the process advances." Legislative reality being what it is these days, the process is going to have to work very hard to advance, as economic belief systems, rule of law, and a backdrop of polarization come into play.
Clearly, the prospect of a tax reform that could kick the economy into higher gear is welcome among business leaders of other sectors as well. This Wall Street Journal piece by Jeffrey Sparshott focused on rising sentiment among manufacturers tied at least in part to expectations around tax reform that could stimulate demand, hiring, hire wages, and a virtuous cycle of economic forces. Sparshott writes:
“There is record-level optimism among manufacturers of all sizes, and it is in no small part because President Trump has delivered on his commitment to put the full weight of the White House behind pro-growth tax reform,” said Jay Timmons, NAM’s president and CEO.
A number of articles focus on dissension in the ranks of real estate, finance, and housing association leaders, suggesting that fissures among them weaken their collective interests. This Politico piece by Lorraine Woellert is an example. Woellert writes:
"The rift is a first for the industry, where real estate agents, builders, bankers and others in the homebuying pipeline typically lock arms to defend the mortgage-interest tax deduction as a building block to homeownership and wealth creation."
NAHB CEO Jerry Howard welcomes the tax overhaul framework as an opportunity to look afresh at tax policy levers that could unlock support for housing and energize the industry. He's quoted here in Woellert's story:
As the nitty-gritty of tax reform gets underway, lawmakers might find new avenues to carve out benefits for homebuyers, Howard said. He raised the prospect of a mortgage tax credit, a benefit that wouldn’t require taxpayers to itemize.
“Thirty years ago, even with the leadership of Ronald Reagan and Tip O’Neill, they never even thought of looking at ways to improve the effectiveness of the mortgage-interest deduction,” Howard said. “This is historic.”
Debate over both the cost and the return in positive effects of the Mortgage Interest Deduction will continue as legislative realities evolve the tax overhaul discussion.
Zillow dives into its data warehouse, and economist Aaron Terrazas spotlights the Zillow view of key impacts here:
- Under current law, a homeowner buying a home today would need to purchase a home worth a minimum of $305,000 in order for taking the MID to be worthwhile.
- Doubling the standard deduction and eliminating the deductibility of state and local taxes means a home buyer purchasing a home today would need to buy a home worth $801,000 or more.
- Currently, a little less than a third (29 percent) of all U.S. homes are valuable enough to make taking the Mortgage Interest Deduction (MID) worthwhile for tax filers. Under recently proposed tax changes, that number would fall to just 5 percent.
