Some Members of Congress just don’t get it.
2011 is the sixth year of the worst housing crash since the Great Depression. The nation’s unemployment rate remains at a stubborn 9.1% and protestors are taking to the streets across the country to express disgust for the state of America’s economy.
But rather than addressing the U.S.’s looming list of financial woes and growing deficit by motivating banks to offer loans, supporting home ownership, and encouraging businesses to hire, some politicos continue to focus their attention on tax reform options that would further damage our already battered economy.
Case in point: On Oct. 6, 2011, the Senate Finance Committee held a hearing, “Tax Reform Options: Incentives for Home ownership,” where a number of industry experts weighed in on the importance of home owner incentives like the mortgage interest deduction. While most experts in attendance agreed that any alteration to the tax code should be postponed until the housing market stabilizes, the testimony still raised a number of red flags for home owners.
According to former Senator John Breaux of Louisiana, who testified at the hearing, the President’s Advisory Panel on Federal Tax Reform “determined that the mortgage interest deduction shouldn’t be eliminated, but rather should be reformed to a home credit with a capped benefit of a lower maximum value as compared to current law.”
Whether by reduction or elimination, any change to the mortgage interest deduction should be viewed as an assault on the roughly 38 million home owners, predominantly middle class, who claim it each year. Such revisions would equate to a tax increase for home owners who already pay 80% to 90% of all taxes collected by the federal government. And repeal of the MID would cost itemizing U.S. home owners an average of about $3,000 per year.
At the hearing, Karl Case, a professor of economics at Wellesley College, suggested that incentives for home ownership cause some owners to over-leverage and lead unqualified buyers to purchase homes. But that’s simply not accurate in the case of the mortgage interest deduction, a benefit of home ownership for than 100 years. In reality, the MID has long proven to provide momentum for economic growth by encouraging qualified buyers to purchase homes. Home owner incentives like the MID help fuel a vibrant housing market, which in turn supports the creation of jobs.
Although Thursday’s Senate hearing on housing seemed to support the short-term preservation of mortgage interest deductions, the very nature of the event is cause for alarm and signals a lack of understanding on Capitol Hill. Rather than discussing ideas that would burden the battered real estate market, lawmakers should spend their time devising plans to recharge housing and the economy will follow.