By Stacey Moncrieff, Editor in Chief, REALTOR® Magazine
In his State of the Union address Tuesday night, President Barack Obama made scant reference to housing and no mention of the mortgage interest deduction. That was probably a wise move on his part — not only because most Americans favor the deduction and there’s speculation (but no evidence that I know of) that he’ll get behind efforts to reform it, but also because such a mention would have been an odd duck in a speech that set out to inspire a country wearied by economic and political turmoil — and to focus the nation’s attention on jobs.
White House Chief Speechwriter Jon Favreau and President Barack Obama put the finishing touches on the president’s Jan. 25, 2011, State of the Union address. (Source: whitehouse.gov)
That said, don’t get too comfortable. During the one-hour speech, Obama made clear his belief that tax reform is critical to reducing the nation’s deficit. Although no significant tax reform legislation is expected to gain traction in 2011 or even in 2012, count on NAR leaders to give new meaning to the term hawk as they keep an eye out for any proposals that could impact housing values and, in turn, hurt local governments.
Opening the State of the Union with a nod to new House Speaker John Boehner (R-Ohio), Obama went on to deliver blunt truths (“Our own engineers graded our nation’s infrastructure a ‘D’“; “America has fallen to 9th in the proportion of young people with a college degree.”); recall the nation’s great triumphs, from the transcontinental railroad to the space program to creation of the Internet; and call on Congress to help foster innovation, improve the education system, and rebuild the nation’s infrastructure. All three are essential to his top priority, he said, which is job creation: “We need to out-innovate, out-educate, and out-build the rest of the world. We have to make America the best place on Earth to do business.”
In the real estate industry, that was bound to be a welcome message since healthy real estate markets depend on a strong job base. Whether Obama’s rhetoric will translate into a lower unemployment rate depends to some extent on how well the Democratic president, Republican-controlled House, and Democratic-controlled Senate work together.
A House United, Somewhat
Both before and after Obama’s speech, commentators talked about the sense of civility — in the wake of the Jan. 8 Tucson, Ariz., shootings — that permeated the chamber. House and Senate members, sitting in an unorthodox arrangement, wore black-and-white ribbons to honor the shooting victims. The family of Christina-Taylor Green attended the event as guests of First Lady Michelle Obama, and Mark Kelly watched from the Houston hospital room, where is wife, Rep. Gabrielle Giffords (D-Ariz.) is being treated.
REALTOR® Magazine Senior Editor Katherine Tarbox was in Washington for the speech, and reported on the civil tone of the evening:
Following from his progress during the lame-duck session, President Obama struck a chord of bipartisanship — and members of Congress got in on the act. For the first time in history, members from opposing parties sat together, applauding as the leader of the free world praised America for its greatness. “Remember, for all the hits we’ve taken these last few years, for all the naysayers predicting our decline, America still has the largest, most prosperous economy in the world,” Obama said.
Referencing House efforts to repeal the health care law that passed in 2010, Obama said he welcomed Republican suggestions for improving the law. “We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses,” he said. He also reiterated his willingness to entertain an idea long sought by Republicans: tort reform. But he said he wouldn’t back down on provisions that expand coverage and prevent insurance companies from denying coverage for pre-existing conditions.
In the Republican response, House Budget Committee Chairman Paul Ryan (R-Wis.) didn’t challenge Obama’s remarks and even called some of Obama’s words “reassuring.” But he faulted the Obama administration for runaway spending. “We face a crushing burden of debt [that] will soon eclipse our entire economy and grow to catastrophic levels in the years ahead,” he said. Rep. Michele Bachman (R-Minn.), speaking on behalf of the Tea Party, echoed Ryan’s call to rein in government spending.
So while the parties seemed to agree on some basic principles (deficit = bad; jobs = good), don’t expect smooth sailing in the 112th Congress. Obama said as much near the close of his speech: “We should have no illusions about the work ahead of us. . . . none of this is easy. All of it will take time,” he said. “And it will be harder because we will argue about everything. … And yet, as contentious and frustrating and messy as our democracy can sometimes be, I know there isn’t a person here who would trade places with any other nation on Earth.”
As bipartisan moments go, that was a winner, drawing a standing O from just about everyone in the room.
What He Said About Taxes
Obama peppered his speech with tax references but offered few specifics. He said last year’s tax cuts, along with a provision enabling businesses to write off the full cost of a new investment, put more money in Americans’ pockets and contributed to the 1 million jobs created last year. However, he reiterated that he doesn’t support permanently extending the Bush tax cuts for the wealthiest 2 percent of Americans.
As for future tax reforms, Obama urged Congress to take away oil-company subsidies and divert the money to new energy sources. He also called for the closing of loopholes that enable some corporations to pay no taxes while “others are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change.”
Individual income tax reform didn’t surface until the president was more than two thirds of the way through his remarks. Although the MID wasn’t mentioned, it could well have been on his mind when he called for a simplification of the tax code. “This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them,” he said.
Obama’s only reference to housing came as part of a call to streamline the federal government. “The last major reorganization of the government happened in the age of black and white TV,” he said. “There are twelve different agencies that deal with exports. There are at least five different entities that deal with housing policy.” He promised “in the coming months” a proposal to merge, consolidate, and reorganize the government in a way that would make the country more competitive.
For now, NAR leaders have their eye on two closer milestones: In February, the Treasury Department is expected to release its long-awaited report on the future of Fannie Mae and Freddie Mac, and the administration is scheduled to release its 2012 budget. That’s when we’ll see whether serious tax-reform debate is in our near future. In any discussions around tax provisions for real estate — residential or commercial — you can be sure NAR will have a front seat.
See C-Span coverage, and read the transcript of Obama’s speech.