Left vs. right. Up vs. down. The debt ceiling battle has Americans unsure what direction the nation is headed. But lost somewhere betwixt and between are American homeowners, who may well lose no matter which party wins.
It’s not just mortgage rates that might rise if the debt deal goes past the ever-changing deadline. It could be that homeowners and prospective buyers discover the much-loved mortgage tax deduction might be going away for good. According to CNBC, “The mortgage interest deduction is back in big play in the budget deal.”
Actually, it never left. Big spenders and other Big Government types have been angling to kill the mortgage deduction for a long time for one big reason – there’s gold in them thar hills. Pundits and politicians have been picking at the deduction for months and the media have largely ignored this attack on homeowners.
Economist Mark Zandi, one of many advocates of killing the deduction, estimated its worth $1.4 trillion over the next 10 years. In a recent Washington Post piece, he referred to it and other tax breaks as “tax expenditures.” The former McCain adviser takes the Big Government view that any tax break is a cost to government – not that government is a cost to taxpayers.
That’s the typical elite view – get rid of the tax break to bring in more money for government. It’s hard to imagine something so ill-conceived. The technical term for killing the mortgage deduction in the midst of a housing collapse is: idiotic. But you could throw in: stupid, misguided, destructive and cataclysmic for good measure.
Paul Bishop, of the National Association of Realtors, told CNN on July 21 that this was folly. “Well, if the mortgage interest deduction went away or were severely curtailed, it would just add one more level of uncertainty to an already uncertain housing market.” Naturally, housing price declines would likely follow.
Realtors President Ron Phipps called the deduction “vital to the stability of the American housing market and economy” in a statement, warning that any changes “now or in the future could critically erode home prices and the value of homes by 15 percent.”
No wonder. That tax break is over 100 years old and aids 75 million homeowners. Meanwhile housing prices have been falling so long they look like Wile E. Coyote plummeting from a cliff. All we’re waiting for is the thud and puff of dust at the bottom. But the pundit class couldn’t care less about that.
As Associated Press story from July 20 explained how the debt plans would hurt the mortgage deduction as part of a plan to lower overall rates. “To help pay for lower rates, the plan would reduce popular tax breaks for mortgage interest, health insurance, charitable giving and retirement savings.”
Robert Pozen, a senior lecturer at Harvard Business School and a senior fellow at the liberal Brookings Institution, urged limits on the deduction in a Washington Post opinion piece. “Congress could raise substantial revenue by imposing several limits on the mortgage interest deduction.”
A July 26 Bloomberg editorial said cutting the deduction was a good idea.
“The panel tasked with finding those savings just may recommend closing tax loopholes and deductions, or ending costly tax expenditures like the deduction on home mortgage interest. If so, all the better.”
That’s what the “experts” were telling Congress as well. “It's not clear that more home ownership is always good,” said Mihir Desai, professor of finance and law at Harvard University. “There are chunks of the population for which renting is a good thing to do.” While there is some truth to that, the cavalier attitude is typical for those who want to wipe out the deduction.
Author and pretend conservative David Frum suggested cutting the benefit in a discussion on CNN. “It isn't clear why people need to deduct $1 million worth of a house when $417,000 is the conforming limit. You would take the mortgage interest deduction down there.” Since government doesn’t adjust for taxes based on cost of living (as it does with salaries), that would hurt homeowners around the nation.
The Simpson-Bowles commission recommended similar cuts to the mortgage deduction last December. Under that plan the interest deduction would be “capped at $500,000” and there would be “no credit for interest from second residence and equity.”
CNBC’s Diana Olick was honest that Simpson-Bowles hurts the middle class. “Obviously all this hits the middle class, urban borrowers the hardest because they're the ones with homes in the $500,000 to $1 million range.” Part of the reason is that taxes aren’t adjusted by locality, but federal pay is.
But whether it’s the Reid plan, the Boehner plan or Simpson-Bowles isn’t important. It is important that the centerpiece of attaining the American Dream may get written off without even much of a debate.
Dan Gainor is the Boone Pickens Fellow and the Media Research Center’s Vice President for Business and Culture. His column appears each week on The Fox Forum. He can also be contacted on Facebook and Twitter as dangainor.