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Budget Again Includes Unpopular Curb on MID, Other Deductions

The value of the mortgage interest deduction (MID) and other itemized deductions for wealthier households would be trimmed in the fiscal 2013 budget proposal President Barack Obama released yesterday, but as in the previous three years, the proposal is expected to attract little support in Congress.

As in previous years, the budget would reduce the value of itemized deductions to 28 percent for married couples with incomes over $250,000 and individuals with income over $200,000. Currently, depending on the tax bracket these households are in, the value of their deductions could be as high as 33 or 35 percent.

The proposal has never attracted sufficient support in either party to be considered, and NAR President Moe Veissi in a statement yesterday said the association would strongly oppose this or any proposal that would limit MID and other itemized deductions.

“The mortgage interest deduction is vital to the stability of the American housing market and economy,” Veissi said. “We urge the president and Congress to do no harm” to today’s fragile economic recovery. “The nation’s homeowners already pay 80 to 90 percent of U.S. federal income taxes. Raising taxes on them, now or in the future, could critically erode home values at all price levels.”

The budget request also includes a previously rejected proposal to tax the carried interest of general partners in investment partnerships, including real estate partnerships, as ordinary income rather than as capital gains, which is taxed at 15 percent. If taxed as ordinary income, it could be taxed at a higher rate, depending on the taxpayer’s tax bracket.

Analysts have said that this provision is mainly aimed at general partners of hedge funds, but general partners in real estate partnerships could get caught unintentionally in it, and NAR in the past has opposed the tax change.

Overall, the budget request, which is just the opening step in a long process in which Congress will develop a budget for passage, envisions fiscal year 2013 spending of about $3.8 trillion. Of that amount, several hundred billion would be new spending for infrastructure, research and development, and other priorities of the administration. The budget envisions cutting about half a trillion dollars from the defense budget, and another roughly half a trillion dollars through tax law changes, including the NAR-opposed curbs to the value of MID for upper-income households. More savings would cone from allowing tax cuts enacted during President George W. Bush’s administration to expire for all households except those earning less than $250,000.

In all, the administration is saying it would cut the deficit by about $3 trillion over 10 years, plus another trillion dollars from legislation Congress passed in August of last year as part of the budget deal to raise the debt ceiling cap.

White House budget overview.

For the MID curbs, click here and scroll to page 39.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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Comments
  1. Lloyd Binen

    When every interest group protects their own turf and the benefits they derive from the current system, nothing gets done. Status quo; the debt grows and may swallow us all. A healthy national economy is more important than losing a small portion of the MID. Let’s agree to make a sacrifice for the greater good of a sound national economy, but insist other special interest groups do, also. Maybe we can get out of this mess and sell more homes.

  2. Agreed. NAR actions reflect the confused identity problem the organization has.
    Its words, actions and advocacy often mirror the priorities of the top 1% of wage earners, while the public persona and the stated target of programs is the other 99% of the population.
    Add in the skew that comes from such a high percentage of membership coming from the high cost and high value California market, and policy just isn’t hitting the mark.
    Wealthy leadership, with heavy management background and income, is steering an entity that represents largely 100% commission sales people who have quite a different reality in their economic lives today. This is neither healthy or productive, and NAR should be working to create and move agendas, not obstruct them.

  3. Joan Gordon

    I am a lifelong Democrat and long term willing taxpayer, but I feel betrayed by President Obama’s continued attacks on the mortgage interest deduction and local property tax deductions. It seems to me to be attack on the middle class.

    If he persists in advocating these destructive proposals,
    I will not vote for his re-election.

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