By Robert Freedman, senior editor, REALTOR® Magazine
The first thing to note about the congressional super committee’s failure to agree to deficit cuts is that MID is spared for the time-being. Among the deals the members of the deficit-cutting committee looked at was a change to itemized deductions, including the mortgage interest deduction. That change was rejected, and in any case no broader deal was worked out. So, MID is off the table for the moment. But it’s worth noting that it was one of the few big-ticket items that got a serious look, which suggests that it will remain a target into the foreseeable future.
What happens next? According to NAR Tax Director Linda Goold, unless Congress passes legislation to change things, some $1.2 trillion in federal programs will be automatically cut in 2013. If that happens, communities in which defense bases and other defense resources play a big role will be hit hard, because defense is slated to take the biggest cut of all. That means bases could be scaled back, and if that happens, the communities in which those bases are housed will see reduced demand for home sales and rentals.
HUD programs will be cut, too. That will mainly hit rental subsidy programs, but it will also hit community development block grants (CDBG) and HOME Investment Partnership grants, which provide grants to communities for affordable housing.
Of course, the broader impact is what all this is doing to our economy. Long-term rates are expected to remain low, if only because the Federal Reserve has said it intends to keep them low. But could the U.S. see another cut in its credit rating? At what point will investors, including foreign investors, start reducing their Treasury purchases?
Plus, there are some wildcards: some estate tax laws are expiring in 2012, as are the tax cuts that were put into place by President George W. Bush in 2001. And in 2013 the deficit ceiling will have to be raised again. What all this means is that we’re looking at another year of deficit-cutting debates in Congress.
NAR Tax Director Linda Goold looks at what we can expect as a result of the super committee’s lack of agreement in the five-minute video above.