School’s coming to members of Congress over the next two days as thousands of REALTORS® meet with lawmakers to provide a refresher course on how critical the federal government’s historic support for home ownership is to the country’s future.
“We have an unprecedented situation today, because so many members of Congress are new and really don’t always know how important home ownership incentives are to the economy and to the country, NAR Chief Lobbyist Jerry Giovaniello told thousands of REALTORS® packed into a 7 a.m. session today as a kick-off to their visits to Capitol Hill.
Each year thousands of REALTORS® come to Washington for the NAR Midyear Legislative Meetings & Trade Expo, which includes two days of Hill visits to champion real estate issues to their members of Congress.
This year is different, Giovaniello said, because as Congress discusses ways to reduce the federal deficit and whether to change the Tax Code, some of the government’s longstanding incentives for home ownership, including the mortgage interest deduction and other tax provisions, will come under debate. The roles of FHA and the secondary mortgage market are also shaping up to be part of the discussion.
“Our main job is really just to educate members on why these incentives have been such priorities for the federal government for so long,” said Giovaniello.
Some 43 percent of the Senate had turned over in the last six years, and in the House, more than 80 members have been in Congress for fewer than three years, many of whom have never served in public office before. “There are many members of Congress who think FHA is a lending program rather than an insurance program, so a lot of what we have to do is just educate these members about these basic things, said Giovaniello.
REALTORS® have three simple talking points they’ll be taking with them to Capitol Hill this week:
1. Preserve MID and other housing tax incentives, including the capital gains exclusion on the sale of a principal residence and the property tax deduction.
2. Protect FHA’s ability to meet its mission of helping responsible households who needs its mortgage insurance to buy a home.
3. And pave the way for the return of private capital to the secondary mortgage market while preserving an explicit, not-for-profit, government-chartered federal presence in the market.
NAR’s tax counsel, Evan Liddiard, said the conditions are the best in almost two decades for Congress to tackle sweeping tax reform, so MID and other tax incentives will be part of the discussion. Liddiard said that even if the two houses of Congress can’t craft legislation that can pass both houses, if any paring back of home ownership incentives are included in bills that at least make it through one house or another, that sets a precedent that will make it easier in later years for harmful changes to pass. “We have to head this off now,” he said.
One argument members of Congress might make in favor of paring back MID is that they need that tax cut in exchange for lowering tax rates, which would help households across the board. But because there’s no guarantee that Congress won’t turn around in a few years and raise the tax rates again, that’s not an argument that makes sense, said Giovaniello. “Once we give up something on MID, we won’t get it back,” he said.
On FHA, which has seen its reserves take a hit in recent years, REALTORS® will be carrying the message that the agency has been the unsung hero of the country’s economic recovery. It stepped up to the plate during the housing downturn and made lending possible at a time when there were few other options. Had it not done that, the country would be in a tougher place right now. And in any case, the agency’s finances are quickly improving and could soon be in positive territory once again.
“FHA is a counter-cyclical program,” said NAR Policy Analyst Megan Booth. “It’s role is to step up when other sources of funding won’t, so it did its job.”
Legislation could be coming down the pike that might seek to require borrowers to come with a higher downpayment or to pay higher insurance premiums or to meet certain income qualifications, said Booth. each of these provisions would be devastating to the agency’s mission and needs to be resisted, she said.
The main message on reform of the secondary mortgage market is that a continued federal presence, explicit and on a nonprofit basis, is essential for the preservation of the widespread availability of 30-year, fixed-rate mortgages. Private lenders without that federal backstop simply won’t make safe, long-term financing available on a widespread basis.
“We’re going to hold members accountable for how they vote on these issues,” Giovaniello said. “That’s one of the messages we need to take to Capitol Hill. We’re watching what they do.”
To reinforce the message, REALTORS® will be wearing badges on lanyards that carry a simple message: “Home ownership is not a loophole.”
Over the next two days, that message will be out in force on Capitol Hill.
Tax provisions are once again under discussion as lawmakers look at dueling budget plans
The federal budget process for next year began last week with release by the Senate and House budget committees of their fiscal 2014 plans. The House plan, prepared under the leadership of Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, is intended to bring the federal budget into balance in 10 years by limiting spending to about 19 percent of the gross domestic product.
The Senate plan, prepared under the direction of Sen. Patty Murray (D-Wash.), chair of her chamber’s budget committee, is intended to put the budget on a sustainable path to balance by reducing it by about $1.85 trillion, half coming from cuts and half from new revenue. The new revenue would come in part by making changes in the tax code, including by closing “loopholes” and “eliminating wasteful spending in the tax code.”
The budget is just a financial blueprint and doesn’t have the force of law, so even if some version of these two proposals is eventually passed by Congress, any actual spending cuts or tax law changes can’t be known at this point just by looking at these documents.
Even so, they’re important to real estate because they point to what battles REALTORS® could be facing in the months ahead. For example, in talking about closing tax loopholes or eliminating wasteful tax expenditures, lawmakers can use that language as a starting point for looking at deductions and credits that are available to households and individuals today. Could that include the mortgage interest deduction? That’s a possibility, says Evan Liddiard, NAR’s policy analyst on tax issues.
Liddiard sat down with Colin Allen, an NAR Legislative representative, last week to talk about how real estate fares under the two budget proposals in Congress and what comes next in the process. Get their take on how the budget battle is shaping up in the 4-minute video above.
Next step in the process is release of the Obama administration’s budget proposal, which is expected in early April. Last year the administration called for curtailment in the value of itemized deductions for wealthier households.
The “fiscal cliff” has quickly become a commonly used term, but exactly what it means isn’t all that clear, especially for real estate. At it’s most basic level, it refers to sweeping tax cuts enacted a decade ago that will expire at year’s end, so tax rates will automatically rise to where they were before, while at the same time automatic spending cuts—the sequestration enacted when the government’s borrowing limit was raised a year ago–will take effect. Thus, the economy faces a two-pronged hit: taxes going up while federal fiscal spending goes down.
If Congress does nothing, that double hit would mean a negative economic impact of about $650 billion, enough to shrink the economy by 4 percent and push the country back into recession, says NAR Chief Economist Lawrence Yun.
For real estate, that has the potential to derail the recovery that’s been slowly taking hold. Foreclosures would rise, home values would drop, hurting households but also hurting FHA, which could get hit with another wave of bad loans. That could put FHA into financial trouble.
Against this background, the federal government will be looking at a lot of options for averting the cliff while also lowering the federal budget deficit for the long-term. That puts the mortgage interest deduction in the spotlight. But is it a good idea to make changes to that tax provision?
Without a doubt, changing the rules of the game on MID now would mean a tremendous hit on real estate markets and household finances, and it could deal a blow to the broader economy, says Yun.
He and NAR economist Danielle Hale look at the different pieces in play under the fiscal cliff debate and also the economic impact of changing MID in the 9-minute video above. The information is intended to be helpful as you try to put the fiscal cliff conversation into perspective.
Read more on the pro and con of modifying MID in a Dec. 10 segment of The Diane Rehm Show.
There are academics and there are consumers, and on the topic of whether the mortgage interest deduction should be modified as the federal government looks for ways to shrink its budget deficit, the opinions couldn’t be more divergent. Consumers are for preserving MID, because it’s one of the middle class’s key incentives for wealth-building. Academics? Not so much. To them, MID should be on the budget-cutting table.
That’s pretty much how the views divided up on The Diane Rehm Show yesterday morning, which brought together a handful of economists to look at MID in the context of the fiscal-cliff debate going on in Washington.
Among the economists, Seth Hanlon of the Center for American Progress, Eric Toder of the Urban-Brookings Tax Policy Center, and Ed Pinto of the American Enterprise Institute, said some type of phase-down or overall cap on all itemized deductions should be looked at. The lone defender of MID, NAR Chief Economist Lawrence Yun, said in the real world, the deduction is not and has never been the answer to the country’s economic woes. MID has not only been in place over the last 99 years as the U.S. became an economic superpower, but it has become so important to the middle class that tinkering with it, especially now, could greatly destabilize the economy.
“Some economists argue that the mortgage interest deduction is holding back economic growth,” Yun said on the popular radio show, which airs on WAMU 88.5 FM and is nationally distributed by NPR. “I would argue the other way, that homeownership provides incentive for people to work hard when thinking the long-term vision.”
The lion’s share of about a dozen callers to the show agreed with Yun. One said he’d moved to this country and worked for eight years to be able to afford a home and to take advantage of the mortgage interest deduction.
MID “was meant to give people a chance and opportunity to have some liquefiable asset in case they get into a financial disaster later on,” said another caller.
Toder of the Urban-Brookings Center says MID shoud be transitioned over a 10-year period from a deduction to a flat credit. “With a credit, if you have $1,000 of mortgage interest and we have an 18 percent credit in our plan, you’re going to get $180 no matter—of savings directly—no matter what your tax bracket is. So it’s just better targeted at people of all tax brackets.”
But Pinto of AEI says the credit isn’t much of a better idea than the deduction. “it’s going to distort housing once again, and we’ve been distorting housing all too much, particularly home ownership,” he said, claiming that today’s standardized deduction, which households can take on their tax return without itemizing, is enough to cover the interest on most household’s mortgage. In his statement, Pinto didn’t account for the deduction home owners can take for property taxes.
The economists challenging MID pointed to the experience in England, which phased out their version of the mortgage interest deduction over many years, and saw little effect on home values over time. But Yun said that the comparison is misleading, because England had an acute shortage of market housing and values would have gone up no matter what simply on the basis of supply and demand. “Housing start activity in England was much lower in proportionately compared to the U.S.,” Yun said. It “was just a supply restriction that occurred in England.” On the show’s Web site, a listener who’d lived in England for 10 years and owned a home there agreed that the comparison was spurious.
One of the last callers on the show summed up consumers’ concerns, saying the phasing out of MID just looks at one side of the debate budget and misses the impact it will have on the middle class. “You’re doing everything right, saving for college, paying life insurance, etc., you start phasing out your tax benefits,” he said. “You’re absolutely killing the middle class. . . . You can’t—it just—you can’t look at one side of the ledger. ”
Learn more about the federal government’s fiscal-cliff debate and possible impacts of making changes to MID as a deficit-cutting measure in a REALTOR® Magazine video released yesterday with NAR Chief Economist Lawrence Yun and NAR economist Danielle Hale.
Commentators, bloggers, and the Twitterverse have been abuzz with praise for the rousing speeches coming out of the Democratic National Convention in Charlotte, N.C., this week, culminating Thursday night with President Barack Obama accepting his party’s nomination. But now that the political festivities have come to a close, where did housing fall in the ranks of Democratic priorities?
Although not as prevalently spotlighted as jobs, healthcare, or education, housing—specifically the mortgage interest deduction (MID)—did receive a nod in Obama’s acceptance speech.
“I refuse to ask middle class families to give up their deductions for owning a home or raising their kids just to pay for another millionaire’s tax cut,” Obama said in his acceptance speech. In a jab at what Democrats see as a Republican platform that favors the wealthy, Obama said, “I want to reform the Tax Code so that it’s simple, fair, and asks the wealthiest households to pay higher taxes on incomes over $250,000—the same rate we had when Bill Clinton was president, the same rate we had when our economy created nearly 23 million new jobs, the biggest surplus in history, and a whole lot of millionaires to boot.” Continue reading »
If you ever wondered whether getting involved in political activities is worth your time, consider the impact your real estate colleagues Shirley Wiseman and April Newland, among others, have just had on an issue that impacts more than 70 million home owners and the millions of households hoping to buy a home in the coming years.
These two real estate professionals, along with others in real estate who are serving as delegates to the Republican National Convention this year, pushed through language in their party’s platform that explicitly calls for protecting the mortgage interest deduction—this in a year when platform writers are underscoring support for comprehensive tax reform.
The Republican platform four years ago also referenced MID, but it was in the context of a broader set of principles on housing. “Because affordable housing is in the national interest, any simplified tax system should continue to encourage homeownership, recognizing the tremendous social value that the home mortgage interest deduction has had for decades,” the platform said.
But this year—in fact, just yesterday—Wiseman, Newland, and others won approval for language that explicitly puts Republicans on record pledging protection of MID, although it first gives a nod to the party’s priority to seek comprehensive tax reform. If that doesn’t pass, protecting MID is paramount.
“I read the platform and there was nothing in it about the mortgage interest deduction, so I offered that as an amendment,” says Wiseman, president of the McVay Group in Lexington, Ky., and a member of the government affairs committee of the Lexington-Bluegrass Association of REALTORS®. Wiseman is also a past president of the National Association of Home Builders and was an FHA official in the mid-1980s.
The language passed easily after she rewrote her original version to reflect the priority the committee wanted to put on comprehensive tax reform. “I opened my statement with the fact that I submitted this amendment on behalf of the 70 million home owners who depend on the mortgage interest deduction to make it comfortable for them to make their payments,” she says. “This deduction is used by middle America. It came to a voice vote and it wasn’t even close. We won. I think it was one of the most important things to come out of the platform, because it is very significant. It’s very strong language and I am absolutely thrilled.”
April Newland, owner of Newland Real Estate in St. Thomas, Virgin Islands, seconded the motion on Wiseman’s amendment and joined other delegates to help push it to passage. Newland has been a delegate to the Republican convention for decades.
Every single provision in the tax code is fair game as lawmakers next year look at how to put the federal government onto a path to eventual balance. Not even a provision as widely popular on a bipartisan basis as the deduction for mortgage interest can be taken for granted. By getting their party’s explicit endorsement to protect MID, Wiseman, Newland, and their colleagues have notched an achievement that matters to every home owner and buyer. “We need the message out that all politics is local,” says Wiseman. “Get involved at home, then you can pursue state and national. It’s so important.”
Republicans writing their party platform for their upcoming 2012 convention in Tampa next week inserted language specifying their support for the mortgage interest deduction. As described in a piece in the Wall Street Journal today, the language says that, “if the GOP failed on tax reform it would favor the retention of the mortgage-interest break.”
This is a clear victory for home buyers, home owners, and the economy, because it specifies that Republican lawmakers favor the retention of MID.
Based on the WSJ report, the first part of the provision suggests Republicans will pursue some type of tax reform. Whether that would include changes to MID can’t be known, but the fact that they specifically expressed support for MID is certainly an endorsement of this 100-year-old tax benefit.
The Wall Street Journal sees the language as something less than a win for home owners, because sponsors of the endorsement originally wanted it separate from any talk of tax reform. Given the climate today, in which lawmakers will be facing the enormous job of trying to put the federal budget on a path to balance, the fact that an explicit endorsement of MID was included in the platform is a victory, pure and simple.
The Journal goes on to point to the federal government’s historic support of home ownership as an underlying factor in the housing bust several years back. That’s an argument it’s made before. But the assertion has never made much sense, since MID has been around for 100 years—that’s 17 presidential administrations—and throughout that time the housing market on a national basis has been an indisputable source of stability in the economy.
That’s something delegates to the Republican platform committee clearly recognized in expressly endorsing the preservation of MID.
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.
For the MID curbs, click here and scroll to page 39.
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.
By Erica Christoffer, Multimedia Web Producer, REALTOR® Magazine
This week, I’m riding along with the Home Ownership Matters Bus Tour as it begins the southwestern leg of its journey across the United States. In case you haven’t heard about the bus tour, its purpose is to provide a forum and outreach to state and local REALTOR® associations, as well as talk to the public and the media about why public policy that supports home ownership is so vital, not only for the real estate industry, but for all current home owners.
From my perspective, it’s a wonderful opportunity to get out and meet members from different regions of the country, hear what’s happening in their market, and bring back their message to NAR. It also helps shape story ideas and tools REALTOR® Magazine can offer members in the future.
No doubt about it, the bus is working, the pro-real estate message is getting out, and people are listening. Numerous local and national media outlets have been writing about the housing industry. And guess what? Most of the stories have been spreading the message about the value of home ownership. Continue reading »