Mortgage interest deduction won’t be cut, but the real estate lobby is still outraged: Our view
For decades, the federal tax code has lavished huge breaks on people who buy houses. The biggest break allows home buyers to deduct all of their interest payments on loans of up to $1 million.
Now, as part of their sweeping plan to slash taxes and overhaul the tax code, Republicans are proposing a different approach, one that would give people a break for not buying houses.
Not surprisingly, the real estate lobby is outraged.
NATIONAL ASSOCIATION OF REALTORS: Don’t penalize homeowners
The GOP plan wouldn’t eliminate the mortgage interest deduction, a break that costs the Treasury $70 billion per year. But it would encourage people not to claim it by giving them an alternative: a greatly expanded standard deduction.
The plan would expand the standard deduction for people who don’t itemize from its current level of $6,350 to $12,000 for individuals (and from $12,700 to $24,000 for a couple). As a result, much of the home-buying public would stop bothering with the mortgage interest deduction.
This would not amount to a big tax break overall, as the expanded deduction would largely be eaten up by the end of the $4,050 personal exemption for filers and spouses. But it would be a substantial break for people who don’t own homes or have paid off their mortgages. This group includes the poor, the young, the itinerant and the elderly.
These might seem likely worthy groups for a tax break. But the housing lobby is dead set on keeping them from getting it. Real estate interests have come out strongly against the proposal and have begun addressing it with hyperbolic language and imagery.
Material put out by the National Association of Realtors, for instance, uses a photo of a tornado-ravaged house to warn of what the Republican tax plan could do to home ownership. It also has a picture of an F-117 stealth attack plane to underscore how “stealthy” Republicans have been in offering an alternative to the mortgage interest deduction, rather than calling for its outright elimination.
The fight shows the two-sided nature of tax breaks. They benefit one group of people — in this case, people borrowing lots of money to buy their homes — at the expense of other people.
Truth is, there is no good reason the tax code should discriminate against someone who can’t, or doesn’t want to, buy a house. In many cases, renters need more help than homeowners, particularly those able to take out a loan approaching $1 million.
Much of the mortgage interest deduction goes to high-cost areas where the ability to build housing is limited. In these areas, the tax break doesn’t create much new housing; instead, it merely inflates the cost of property.
That’s a great thing for people who already own property. But it makes buying a home more expensive for people on the outside looking in.
While it would be better to simply phase out the mortgage interest deduction and other breaks mucking up the tax code, the Republican plan of a larger standard deduction in its place would accomplish many of the same things. In fact, it’s one of the best parts of an otherwise flawed plan that tilts toward the wealthy.
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