The mortgage interest deduction is helping to keep Americans in their homes at a time when many of them are struggling financially, so it would be foolhardy to tamper with the popular tax benefit now, Rep. Ruben Hinojosa (D-Texas) said at a forum in Washington yesterday.
If the deduction is eliminated or changed, “blame will be placed at the feet” of those lawmakers who supported such a “misguided” policy by voters, said Hinojosa, a senior member of the House Financial Services Committee and one of the original sponsors of a House resolution (H. Res. 25) to preserve MID in its current form.
The resolution was introduced in early January and has just under 40 cosponsors, “and I expect many more to sign on” after lawmakers return next week from a recess, Hinojosa said.
“I cannot support a change to MID to a tax credit, for first or second homes, at this time,” Hinojosa said. “I don’t want to test the waters with Americans already nervous about the economy. Home owners expect to use MID, and buyers expect to receive it.”
The forum, sponsored by the Hudson Institute, a public policy think tank, featured analysts who’ve looked at MID from a range of perspectives. John Weicher, director of the Hudson Institute’s Center for Housing and Financial Markets and a former assistant secretary of research at the U. S. Department of Housing and Urban Development, said eliminating MID would create an unsupportable inequity between home owners and owners of rental property.
Right now, rental property owners are supported by the public sector through a number of tax benefits, including deductions for their business expenses and state and local taxes, and the maintenance associated with their property. They also receive favorable capital gains tax treatment and can also lower their taxes through asset depreciation mechanisms.
To thus take away the home owner benefits while leaving the rental owner benefits in place would skew the country’s public priorities in favor of rental housing.
“The home is a place for people to live but it’s also an asset for the owner,” said Weicher, “so the owner is an investor in that asset” in the same way that an owner is an investor in a rental property.
Estimates vary widely on how much MID costs the federal government in foregone tax revenue. The number heard frequently in the media and elsewhere is about $100 billion. That number is probably much higher than the reality, participants at the forum said, because many households facing a curtailed or eliminated MID would simply shift their tax strategy to lower their taxes in other ways through a “reshuffling of their portfolio,” said James Follain, a senior fellow at the Nelson A. Rockefeller Institute of Government.
Follain estimates the federal government would receive only a quarter of what the nonpartisan Congressional Budget Office (CBO) estimates it would receive through change to or elimination of MID. “Others might debate that figure and say the government will get more than 25 percent of the CBO estimate, but there’s a consensus that there will be some asset reshuffling,” he said.
Weicher put the actual savings to government at about $21 billion, “and even that’s an over estimation,” he said.
Donald Haurin, a professor of economics, finance, and public policy at Ohio State University, said there’s an unmistakable linkage between home ownership and improved communities and “social outcomes” such as higher school achievement by children whose parents own their home, fewer teenage pregnancies, and more participation in volunteer activities.
More research is underway, some of it by the MacArthur Foundation, to determine exactly what’s causing those improved social outcomes—whether it’s a function of the type of people who own or whether home ownership itself changes people—but given that the linkage is there, even if not fully understood, lawmakers should have it in mind when they start talking about changing MID.
Haurin said that, as a point of principle, since home ownership benefits the wider community through these improved social outcomes, “a case can be made” to maintain MID, because it’s not just the home owners themselves who are benefitting; the community as a whole is.
Sheila Crowley, president and CEO of the National Low Income Housing Coalition and the most critical of the deduction, said the bigger need for scarce federal resources is the lack of rental housing for the country’s poorest households. Her organization is developing recommendations to concert MID to a credit and to apply some of the savings to the government to the development of subsidized rental housing.
“If we move to a credit and lower the cap [to $500,000 from today’s $1 million on the value of the house that’s eligible for the benefit], we could solve the housing shortage, she said.
In his fiscal year 2010 budget request to Congress, which was released earlier this week, President Obama proposed capping the value of all itemized deductions, including MID, for higher-income households to 28 percent from 33-35 percent. That proposal has been included in each of the president’s earlier two budget requests but has yet to attract congressional support.